THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this Document or the action you should take, you are recommended to seek your own financial advice immediately from an appropriately authorised stockbroker, bank manager, solicitor, accountant or other independent financial adviser who, if you are taking advice in the United Kingdom, is duly authorised under the Financial Services and Markets Act 2000 (“FSMA”). This Document comprises a prospectus relating to Hertsford Capital plc (to be renamed OTAQ plc) and has been prepared in accordance with the Prospectus Regulation (EU) 2017/1129 (the “Prospectus Regulation”). A copy of this Document has been filed with the Financial Conduct Authority and made available to the public as required by the Prospectus Regulation. This Prospectus has been approved by the FCA, as competent authority under Regulation (EU) 2017/1129; the FCA only approves this Prospectus as meeting the standards of completeness, comprehensibility and consistency imposed by the Prospectus Regulation and such approval should not be considered as an endorsement of the quality of the Ordinary Shares and the issuer that is the subject of this Prospectus. Investors should make their own assessment as to the suitability of investing in the Ordinary Shares. The current entire issued Ordinary Shares in the capital of the Company (the “Existing Ordinary Shares”) are admitted to listing as a Standard Listing maintained by the FCA, in its capacity as competent authority under FSMA under chapter 14 of the Listing Rules and to trading on the Main Market of the London Stock Exchange. As the Company’ s acquisition of the entire issued share capital of OTAQ Group Limited (“OTAQ GL”) and its subsidiaries (the “Acquisition”) constitutes a “reverse takeover” under the Listing Rules (“Reverse Takeover”), upon announcement of the proposed Acquisition on 12 February 2020, the Standard Listing of the Existing Ordinary Shares was suspended by the FCA. In accordance with the Listing Rules, upon completion of the Acquisition the FCA will cancel the Company’ s existing Standard Listing. Further applications will be made to the UK Listing Authority for the Existing Ordinary Shares to be re-admitted and for the New Ordinary Shares to be admitted to the standard segment of the Official List and to the London Stock Exchange for the re-admission of the Existing Ordinary Shares and admission of the New Ordinary Shares to trading on the Main Market (together the “Admission”). It is currently expected that the Admission will become effective post Completion at 8 a.m. on 31 March 2020 (whereupon an announcement will be made by the Company to a Regulatory Information Service). The whole of the text of this document should be read by prospective investors. Your attention is specifically drawn to the discussion of certain risks and other factors that should be considered in connection with an investment in the Ordinary Shares contained at Part 2 of this Document headed “Risk factors”. Hertsford Capital plc (to be renamed OTAQ plc) (incorporated in England and Wales under the Companies Act 2006 with registered number 11429299) Placing of 2,608,694 Ordinary Shares of 15 pence each at 57.5 pence per Ordinary Share Admission to the Of ficial List and to trading on the London Stock Exchange’ s Main Market The New Ordinary Shares will be issued credited as fully paid and will rank pari passu in all respects with the Existing Ordinary Shares on Admission including the right to receive all dividends and other distributions declared, made or paid after Admission. This Document does not constitute an offer to sell, or the solicitation of an offer to buy or subscribe for Ordinary Shares in any jurisdiction in which such offer or solicitation is unlawful. The Ordinary Shares have not been, and will not be, registered under the United States Securities Act of 1933 as amended (the “Securities Act”) or qualified for sale under the laws of any state of the United States or under the applicable laws of any of Canada, Australia or Japan and, subject to certain exceptions, may not be offered or sold in the United States or to, or for the account or benefit of, US persons (as such term is defined in Regulation S under the Securities Act) or to any national, resident or citizen of Canada, Australia or Japan. Neither this Document, nor any copy of it, may be sent to or taken into the United States, Canada, Australia or Japan, nor may it be distributed to any US person (within the meaning of Regulation S under the Securities Act). No person is authorised in connection with the Placing to give any information or to make any representation other than as contained in this Document and, if given or made, such information or representation must not be relied upon as having been authorised by or on behalf of the Company. The contents of this Document are not to be construed as legal, business or tax advice. Each prospective investor should consult his, her or its own solicitor, independent financial adviser or tax adviser for legal, financial or tax advice.
Transcript
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are inany doubt about the contents of this Document or the action you should take, you are recommended toseek your own financial advice immediately from an appropriately authorised stockbroker, bank manager,solicitor, accountant or other independent financial adviser who, if you are taking advice in the UnitedKingdom, is duly authorised under the Financial Services and Markets Act 2000 (“FSMA”).
This Document comprises a prospectus relating to Hertsford Capital plc (to be renamed OTAQ plc) and has beenprepared in accordance with the Prospectus Regulation (EU) 2017/1129 (the “Prospectus Regulation”). A copy ofthis Document has been filed with the Financial Conduct Authority and made available to the public as requiredby the Prospectus Regulation. This Prospectus has been approved by the FCA, as competent authority underRegulation (EU) 2017/1129; the FCA only approves this Prospectus as meeting the standards of completeness,comprehensibility and consistency imposed by the Prospectus Regulation and such approval should not beconsidered as an endorsement of the quality of the Ordinary Shares and the issuer that is the subject of thisProspectus. Investors should make their own assessment as to the suitability of investing in the Ordinary Shares.
The current entire issued Ordinary Shares in the capital of the Company (the “Existing Ordinary Shares”) areadmitted to listing as a Standard Listing maintained by the FCA, in its capacity as competent authority underFSMA under chapter 14 of the Listing Rules and to trading on the Main Market of the London Stock Exchange.
As the Company’s acquisition of the entire issued share capital of OTAQ Group Limited (“OTAQ GL”) and itssubsidiaries (the “Acquisition”) constitutes a “reverse takeover” under the Listing Rules (“Reverse Takeover”),upon announcement of the proposed Acquisition on 12 February 2020, the Standard Listing of the ExistingOrdinary Shares was suspended by the FCA. In accordance with the Listing Rules, upon completion of theAcquisition the FCA will cancel the Company’s existing Standard Listing. Further applications will be made to theUK Listing Authority for the Existing Ordinary Shares to be re-admitted and for the New Ordinary Shares to beadmitted to the standard segment of the Official List and to the London Stock Exchange for the re-admission ofthe Existing Ordinary Shares and admission of the New Ordinary Shares to trading on the Main Market (togetherthe “Admission”).
It is currently expected that the Admission will become effective post Completion at 8 a.m. on 31 March 2020(whereupon an announcement will be made by the Company to a Regulatory Information Service).
The whole of the text of this document should be read by prospective investors. Your attention isspecifically drawn to the discussion of certain risks and other factors that should be considered inconnection with an investment in the Ordinary Shares contained at Part 2 of this Document headed “Riskfactors”.
Hertsford Capital plc(to be renamed OTAQ plc)
(incorporated in England and Wales under the Companies Act 2006 with registered number 11429299)
Placing of 2,608,694 Ordinary Shares of 15 pence eachat 57.5 pence per Ordinary Share
Admission to the Official List and to trading on the London Stock Exchange’s Main Market
The New Ordinary Shares will be issued credited as fully paid and will rank pari passu in all respects with theExisting Ordinary Shares on Admission including the right to receive all dividends and other distributionsdeclared, made or paid after Admission.
This Document does not constitute an offer to sell, or the solicitation of an offer to buy or subscribe for OrdinaryShares in any jurisdiction in which such offer or solicitation is unlawful. The Ordinary Shares have not been, andwill not be, registered under the United States Securities Act of 1933 as amended (the “Securities Act”) orqualified for sale under the laws of any state of the United States or under the applicable laws of any of Canada,Australia or Japan and, subject to certain exceptions, may not be offered or sold in the United States or to, or forthe account or benefit of, US persons (as such term is defined in Regulation S under the Securities Act) or to anynational, resident or citizen of Canada, Australia or Japan. Neither this Document, nor any copy of it, may be sentto or taken into the United States, Canada, Australia or Japan, nor may it be distributed to any US person (withinthe meaning of Regulation S under the Securities Act).
No person is authorised in connection with the Placing to give any information or to make any representationother than as contained in this Document and, if given or made, such information or representation must not berelied upon as having been authorised by or on behalf of the Company.
The contents of this Document are not to be construed as legal, business or tax advice. Each prospective investorshould consult his, her or its own solicitor, independent financial adviser or tax adviser for legal, financial or taxadvice.
TABLE OF CONTENTS
Part 1 Summary 3
Part 2 Risk Factors 10
Part 3 Important Information 18
Part 4 Directors, Company Secretary and Advisers 22
Part 5 Expected Timetable of Principal Events 24
Part 6 Placing Statistics 25
Part 7 Information on the Enlarged Group 26
Part 8 Operational and Financial Review 46
Part 9 Historical Financial Information 52
Part 10 Pro Forma Financial Information 122
Part 11 Unaudited Interim Financial Information 126
Part 12 Taxation 138
Part 13 Consequences of a Standard Listing 141
Part 14 Additional Information 142
Part 15 Definitions 171
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PART 1
SUMMARY
This summary conveys the essential characteristics of, and risks associated with, the Company and the Ordinary Shares and should be readsolely as an introduction to this Document. Any decision to invest in Ordinary Shares should be based on a consideration of this Document as awhole.
If you bring a claim relating to the information contained in this Document before a court where English is not the language in whichproceedings are conducted, you may have to bear the costs of translating this Document before the legal proceedings are initiated. Civil liabilityattaches to the persons responsible for this summary, but only if the summary is misleading, inaccurate or inconsistent when read together withthe other parts of this Document.
1. INTRODUCTION AND WARNINGS
Name and ISIN of thesecurities
The securities are the Ordinary Shares, which have the ISIN GB00BK6JQ137
Identity and contact details ofthe issuer
The issuer is Hertsford Capital plc (to be renamed OTAQ plc), and its registered address is at 16 Great QueenStreet, London WC2B 5DG.
Identity and contact details ofthe offeror or of the personasking for admission to tradingon a regulated market
The Company is the offeror and the person asking for admission to trading of the Ordinary Shares on theMain Market, which is a regulated market.
Date of approval of theProspectus
The Prospectus was approved on 24 March 2020
Identity and contact details ofthe competent authorityapproving the Prospectus
The competent authority approving the Prospectus is the FCA.
The FCA’s registered office address is at 12 Endeavour Square, London, E20 1JN, United Kingdom and
telephone number is +44 (0)20 7066 1000.
Warnings This summary should be read as an introduction to the Prospectus.
Any decision to invest in Ordinary Shares should be based on consideration of the Prospectus as a whole bythe investor.
The investor could lose all or part of the invested capital.
Where a claim relating to the information contained in the Prospectus is brought before a court, the plaintiffinvestor might, under national law, have to bear the costs of translating the Prospectus before legalproceedings are initiated.
Civil liability attaches only to those persons who have tabled this summary including any translation thereofbut only if this summary is misleading, inaccurate or inconsistent when read together with other parts of thisDocument or it does not provide, when read together with other parts of this Document, key information inorder to aid investors when considering whether to invest in such securities.
2. KEY INFORMATION ON THE ISSUER
2.1 Who is the issuer of the securities?
Legal and commercial name The legal and commercial name of the issuer is Hertsford Capital plc (to be renamed OTAQ plc).
Domicile and legal form The Company was incorporated and registered in England and Wales on 22 June 2018 as a public limitedcompany under the Companies Act 2006.
The Company’s LEI is 213800CZGMYB5XTUXJ52
Principal activities The principal activity of the Company is as a cash shell company. The Company does not trade. Followingthe Completion of the Acquisition of OTAQ GL, the principal activity of the Enlarged Group will be thedesign, development, provision and support of marine technology for use in the aquaculture and the offshoreoil and gas industries. The core products of the Enlarged Group will in aquaculture be primarily to deterpredator attacks on offshore salmon farms and in offshore oil and gas. A range of sub-sea cameras, lasermeasuring devices and high technology electrical connectors.
On 10 March 2020, the Company entered into a sale and purchase agreement (the Main SPA) with Sellersrepresenting approximately 86% of the issued share capital of OTAQ GL together with its subsidiaries.Thereafter, OTAQ GL commenced a drag along process pursuant to Article 30 of OTAQ GL’s articles ofassociation to acquire the remaining approximately 14% of OTAQ GL’s shares from other Sellers (Dragged
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Shareholders). In due course (but before the General Meeting) an agreement will be entered into between theCompany and the Dragged Shareholders to acquire those remaining OTAQ GL shares. The considerationpayable under the Acquisition is to be satisfied by the issue to the Sellers of the Consideration Shares. As theAcquisition constitutes a Reverse Takeover, the Standard Listing of the Ordinary Shares was suspended bythe FCA on 12 February 2020 pending the Company publishing a prospectus in relation to Admission. TheAcquisition is expected to complete on 31 March 2020.
Major shareholders (over 3%)of the Company before andimmediately following the issueof the New Ordinary Shares Name of Shareholder
Note 1 – includes 10,000 Ordinary Shares held by Anita Hyman (Harry Hyman’s wife) and 109,578 OrdinaryShares held by Nexus Central Management Services Ltd a company controlled by Harry Hyman.Note 2 – excludes warrants to acquire 80,000 Ordinary Shares held by Harry Hyman.Note 3 – at Admission 284,000 Ordinary Shares are held by Paul Curtis and 436,887 Ordinary Shares areheld by Philippa Curtis.Note 4 – at Admission 631,044 Ordinary Shares are held by David Poutney and 986,202 Ordinary Shares areheld by Vivien Poutney. David Poutney is an associate of Dowgate.Note 5 – Euroblue Investments is controlled by Mr Nigel Wray.Note 6 – The holdings of substantial shareholders immediately following Admission are based on thefollowing assumptions: (i) the Placing having occurred and the Placing Shares having been issued; and(ii) the issue of the Consideration Shares. It does not include (a) the issue of Ordinary Shares to satisfy theacquisition of the OTAQ Option Shares detailed in paragraph 16 of Part 7 of this Document; and (b) the issueof the Warrant Shares (further details of which are located in paragraph 17 of Part 7 of this Document);On Admission, the holders of the New Ordinary Shares will not have special voting rights and the OrdinaryShares owned by them will rank pari passu in all respects with the holders of the Existing Ordinary Shares.
Directors on Admission Alexander Hambro (non-executive Chairman)Philip Newby (Chief Executive Officer)Simon Walters (Chief Financial Officer)George Watt (non-executive)Sarah Gills (non-executive)
Statutory auditors RSM UK Audit LLP for OTAQ GLHaysmacintyre LLP for the Company
2.2 What is the key financial information regarding the issuer?
Selected historical key financialinformation
Summary financial information for the Existing OTAQ Group for the three years ended 31 March 2019 andthe six months ended 30 September 2019 as set out below has been extracted without material adjustmentfrom the audited historical financial information set out in Section B of Part 9 and the unaudited interimfinancial information set out in Part 11 respectively and should be read in conjunction with the full text of thisdocument. Investors should not rely on the summarised information set out below.
Except for the possible effects of the matter described in the basis for qualified opinion in the Accountant’sReports of OTAQ Connectors Limited (as set out in sections C and D of Part 9 and OTAQ Offshore Limited(as set out in Sections E and F of Part 9), the historical financial information of OTAQ Connectors Limitedand OTAQ Offshore Limited gives, for the purposes of the Prospectus, a true and fair view of the state ofaffairs as at the dates stated and of the results, cash flows and changes in equity for the periods then ended inaccordance with International Financial Reporting Standards as adopted by the European Union.
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Table 1
Statement of Comprehensive Income
AuditedYear to
31 March2019£000
AuditedYear to
31 March2018£000
AuditedYear to
31 March2017£000
UnauditedSix monthsto 30 Sep
2019£000
UnauditedSix monthsto 30 Sep
2018£000
Total revenue 1,577 919 374 1,757 653
Operating loss (343) (519) (642) (46) (234)
Loss for the period and total comprehensive loss for theperiod (369) (493) (657) (137) (256)
EBITDA 50 (361) (553) 315 (81)
Table 2
Balance sheet
AuditedAt
31 March2019£000
AuditedAt
31 March2018£000
AuditedAt
31 March2017£000
UnauditedAt 30 Sep
2019£000
Total assets 4,460 1,793 733 6,166
Total equity 2,297 648 306 3,314
Table 3
Cash flow statement
AuditedYear to
31 March2019£000
AuditedYear to
31 March2018£000
AuditedYear to
31 March2017£000
UnauditedSix monthsto 30 Sep
2019£000
UnauditedSix monthsto 30 Sep
2018£000
Net cash in/(out) flows 67 207 84 784 953
2.3 What are the key risks that are specific to the issuer?
Brief description of the mostmaterial risk factors specific tothe issuer contained in theProspectus
The markets for the Existing OTAQ Group’s products, including Sealfence, are competitive. The ExistingOTAQ Group has competitors in all the markets in which it operates, many of which have greater financial,marketing and other resources than the Enlarged Group. Whilst, alternative competing technologies to theExisting OTAQ Group’s technology (including Sealfence) exist and are in use today, further products couldemerge which might reduce the market opportunity for the products offered by or planned to be offered by theEnlarged Group.
The Enlarged Group’s products operate in physically harsh environments and competitive markets. There arerisks that the Enlarged Group’s existing and any new products do not meet the specification required bycustomers and/or cannot be supplied profitably by the Enlarged Group.
The Company believes, and independent studies have shown, that the operation of the Enlarged Group’sproducts present a negligible risk of harming either predators or nearby marine mammals. However, there is arisk that misinformation about possible adverse effects of ADDs may slow the growth of the EnlargedGroup’s business by either causing customers to avoid using ADDs due to consumer pressure or increasingregulation in the sector.
The Enlarged Group’s business model for certain products is rental terms varying between 12-48 months.Unless these contracts are renewed on expiry, the Enlarged Group could suffer an eventual a reduction inrevenue.
In the aquaculture market, the Existing OTAQ Group’s products and its customers are subject to a highdegree of regulation that extends beyond the territories in which the Existing OTAQ Group and its customersare based. Any changes which are made in tariffs, quotas, taxes, legislation or regulations which affect orrelate to the Existing OTAQ Group’s products and trading arrangements between the Enlarged Group and itscustomers or the sale of products by its customers into their end markets could have an adverse effect on thebusiness including profitability and growth of the Enlarged Group. As an example of this, the regulatoryposition relating to use of ADDs in Chile is currently being assessed. OTAQ GL is working with Subpesca(Undersecretariat of Fisheries and Aquaculture – Government of Chile) (“Subpesca”) the Chilean regulatorfor fisheries and aquaculture, in assisting it in understanding the risk of ADD use to predators and marinemammals in the vicinity of fish farms. Whilst the Enlarged Group is confident in the safety of its Sealfence
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products, the Company considers that working with Subpesca in assisting it to understand the position ishelpful. However, if the Chilean regulator ultimately does not accept the Company’s position and bans orrestricts use of the Sealfence product in Chile, this could have a serious detrimental effect on the EnlargedGroup’s expansion plans in Chile.
There has been civil unrest in Chile in 2019 which has had an impact on the Existing OTAQ Group’sexpansion plans in Chile in the current financial year. The position in Chile now appears to be stable and theExisting OTAQ Group continues to make progress in Chile. If there is a material deterioration in the politicalenvironment in Chile that results in a sustained period of civil unrest this may have an adverse effect on thegrowth prospects of the Enlarged Group.
The Enlarged Group is exposed to the effect of currency fluctuations. Supply of its products and componentsoccurs outside the UK and its revenues from customers arise not only in the UK but in Chile, and othercountries. The Enlarged Group will seek to mitigate such exposures where appropriate but this may not befeasible in all circumstances.
The aquaculture market is, by its nature, specialised and limited and the growth plans for the aquaculturebusiness over the next two years are dependent upon winning new contracts from a limited number of largeaquaculture companies in the UK and Chile. Accordingly, the Enlarged Group plans to expand the use of itsexisting products into new geographic markets and to develop new products for sale to its existing customersbut there can be no assurance that the Group will be able to expand its business as planned or that theexpanded business will be profitable.
The Enlarged Group is reliant on its IT systems for the provision of information regarding most aspects of itsfinancial and operational performance, including sales and stock information. The failure of these IT systemswould severely restrict the ability of the Enlarged Group to continue to operate at its current performancelevels.
The Existing OTAQ Group is dependent and the Enlarged Group will be dependent on a limited number ofsenior managers and accordingly attracting, retaining and motivating suitable, high-calibre personnel iscritical to the long-term success of the Enlarged Group’s business.
The Existing OTAQ Group operates primarily in Scotland and Chile. Its operations may be disrupted by theCoronavirus (COVID-19) in so far as travel restrictions may be put in place that would prevent theinstallation of new Sealfence units and the maintenance of existing Sealfence units. The Enlarged Group isdependent upon two suppliers for the assembly and manufacture of its aquaculture products. Both of thesemanufacturers are outside the UK. In light of this and more generally, the Existing OTAQ Group, itscustomers and suppliers are dependent on international supply chains. If the Coronavirus results in severedisruption to international trade then the Existing OTAQ Group will be impacted potentially with a materialimpact on its supply chain, sales, profits and cashflows although it is at this point it is not possible to quantifythat impact.
3. KEY INFORMATION ON THE SECURITIES
3.1 What are the main features of the securities?
Type, class and ISIN The securities being offered in the Placing are Ordinary Shares in the capital of the Company. Applicationswill be made for the Ordinary Shares to be admitted to the Official List of the FCA with a Standard Listingand to trading on the London Stock Exchange’s Main Market. The Ordinary Shares are registered with ISINGB00BK6JQ137
Currency, denomination, parvalue, number of securitiesissues and the term of thesecurities
U.K. Pounds Sterling with a nominal value of 3 pence each.
32,000,001 Ordinary Shares have been issued at the date of this Prospectus (the “Existing Ordinary
Shares”), all of which have been fully paid up. The term of the securities is perpetual. Following passing of
the Resolutions, the Existing Ordinary Shares will be consolidated on a five-for-one basis into 6,400,001
Ordinary Shares of 15p each.
Rights attached to the securities Shareholders will have the right to receive notice of and to attend and vote at any meetings of Shareholders.Each Shareholder entitled to attend and being present in person or by proxy at a meeting will, upon a show ofhands, have one vote and upon a poll each Shareholder present in person or by proxy will have one vote foreach Ordinary Share held by such Shareholder.
In the case of joint holders of an Ordinary Share, if two or more persons hold an Ordinary Share jointly, thevote of the senior who tenders a vote whether in person or by proxy, shall be accepted to the exclusion of theother joint holders and for this purpose, seniority is determined by the order in which the names stand in theregister of members in respect of the joint holding.
Pursuant to the Resolutions, pre-emption rights will be disapplied in respect of the issue of the New OrdinaryShares, the Warrant Shares, the shares to satisfy the OTAQ Share Options and the Consideration Shares.
Subject to the Companies Act, on a winding-up of the Company the assets of the Company available fordistribution shall be distributed, provided there are sufficient assets available, first to the holders of OrdinaryShares in an amount up to 3 pence per share in respect of each fully paid up Ordinary Share (of 15 pence pershare following Admission). If, following these distributions to holders of Ordinary Shares there are any
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assets of the Company still available, they shall be distributed to the holders of Ordinary Shares pro rata tothe number of such fully paid up Ordinary Shares held (by each holder as the case may be) relative to the totalnumber of issued and fully paid up Ordinary Shares.
Relative seniority of thesecurities in the issuer’s capitalstructure in the event ofinsolvency
Not applicable. The Company does not have any other securities in issue or liens over its assets and so theOrdinary Shares are not subordinated in the Company’s capital structure as at the date of this Prospectus andwill not be immediately following Admission.
Restrictions on the freetransferability
Not applicable. The Ordinary Shares are freely transferable and tradeable and there are no restrictions ontransfer, save for a requirement not to transfer for a period from Admission until the earlier of 150 days afterAdmission and the publication of the Company’s preliminary results for this period to 31 March 2020(further details of which are set out in paragraph 12.12 of Part 14 of this Document). More onerous lock inarrangements apply to the Board of the Company following Admission.
Each Shareholder may transfer all or any of their Ordinary Shares which are in certified form by means of aninstrument of transfer in any usual form or in any other form which the Directors may approve. EachShareholder may transfer all or any of their Ordinary Shares which are in uncertified form by means of a‘relevant system’ (i.e. the CREST System) in such manner provided for, and subject as provided in, theUncertified Securities Regulations 2001 (SI 2001 No. 3755) (the “Regulations”).
Dividend or pay-out policy The Directors do not intend that the Company will declare a dividend in the near term, but instead apply theavailable cash resources of the Enlarged Group into funding its expansion. Thereafter, the Board intends tocommence the payment of dividends only when it becomes commercially prudent to do so, having regard tothe availability of distributable profits and the funds required to finance continuing future growth.
3.2 Where will the securities be traded?
Application for admission totrading
The Existing Ordinary Shares are currently (and it is expected that the New Ordinary Shares will be) admittedto the standard segment of the Official List and to trading on the Main Market. As the Acquisition constitutesa Reverse Takeover, upon Completion, the listing of the Ordinary Shares on the standard segment of theOfficial List will be cancelled. Further applications will be made to the UK Listing Authority and to theLondon Stock Exchange for the Ordinary Shares (at such time comprising the Existing Ordinary Shares andthe New Ordinary Shares) to be re-admitted to the standard segment of the Official List. Completion of theAcquisition and the Placing will both be subject to Admission occurring. Completion will become effective atAdmission which is currently expected to take place at 8 a.m. on 31 March 2020 (whereupon anannouncement will be made by the Company to a Regulatory Information Service).
Identity of other markets wherethe securities are to be traded
Not applicable. There is currently no other market for the Ordinary Shares and the Company does not intendto seek admission to trading of the Ordinary Shares on any market other than the Main Market of the LondonStock Exchange.
3.3 What are the key risks that are specific to the securities?
Brief description of the mostmaterial risk factors to thesecurities contained in theProspectus
Following Admission, the market in the Ordinary Shares is likely to be illiquid given the size of the EnlargedGroup, the limited number of shares and shareholders. As such, it may be difficult for shareholders to easilyrealise their investment. As a result of such volatility, Shareholders may experience a negative or no return onmonies invested in the Company.
A suspension or cancellation of the Ordinary Shares, as a result of the FCA determining that there isinsufficient information in the market about an acquisition or a target, would materially reduce liquidity insuch shares which may affect an investor’s ability to realise some or all of its investment and/or the price atwhich such investor can effect such realisation. In the event of such suspension or cancellation, the value ofthe investors’ shareholdings may be materially reduced.
The Company is applying for a Standard Listing on the Official List in accordance with Chapter 14 of theListing Rules. As a result, the Shareholders will be afforded a lower level of regulatory protection than thatafforded to investors of a company with a Premium Listing. For example, the Company will not beappointing a sponsor to guide the Company in understanding and meeting its responsibilities under theListing Rules in connection with certain matters. The application of the Listing Rules regarding significanttransactions and related party transactions (which requires shareholder approval if a company has a PremiumListing) will not apply to the Company. In addition, the UK Listing Authority will not have the authority to(and will not) monitor the Company’s compliance with any of the Listing Rules which the Company hasindicated that it intends to comply with on a voluntary basis, nor to impose sanctions in respect of any failureby the Company so to comply.
Following Admission, the Company may need to raise additional funds if the Existing OTAQ Group is notsufficiently cash generative and/or to make further equity capital raisings in order to complete any acquisitionor to develop the business so acquired. If the Company does offer its Ordinary Shares whether to raiseadditional funds or as consideration in making acquisitions, depending on the number of Ordinary Shares atthe time, the issuance of such Ordinary Shares could materially reduce the percentage ownership representedby the holders of Ordinary Shares in the Company and also dilute the value of Ordinary Shares held by suchShareholders at the time.
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4. KEY INFORMATION ON THE OFFER OF SECURITIES TO THE PUBLIC AND/OR THE ADMISSION TO TRADING ON AREGULATED MARKET
4.1 Under which conditions and timetable can I invest in this security?
General terms and conditions The Company will issue 2,608,694 Placing Shares through the Placing at the Placing Price of 57.5 pence perPlacing Share. The Placing is not being underwritten.
The net proceeds of the Placing, after deduction of expenses, will be approximately £0.5m on the basis thatthe gross proceeds of the Placing are approximately £1.5m.
The total expenses of the Acquisition, including the Placing and the preparation of this document areestimated to be approximately £1m (exclusive of VAT).
The Company, the Directors, Proposed Directors, Jagjit Mundi and Dowgate have entered into the PlacingAgreement relating to the Placing pursuant to which, subject to certain conditions, Dowgate has agreed to useits reasonable endeavours to procure subscribers for 2,608,694 Placing Shares to be issued by the Company.The Placing Shares subscribed for in the Placing at the Placing Price will represent approximately 8.5% of theEnlarged Issued Share Capital.
The Placing is conditional on:
a. the Placing Agreement becoming wholly unconditional (save as to Admission) and not having beenterminated in accordance with its terms prior to Admission;
b. the OTAQ Purchase Agreements becoming unconditional (save as to Admission) and not having beenterminated in accordance with their terms prior to admission;
c. the passing of the Resolutions (including the Transaction Resolutions) at the General Meeting; and
d. Admission occurring by 8am on 31 March 2020 (or such later date as the Company and Dowgatemay agree).
The Placing Shares, the Consideration Shares will, upon issue, rank pari passu with the Existing OrdinaryShares. If Admission does not proceed, the Acquisition will not proceed, the Placing will not proceed, and allmonies paid will be refunded to applicants in the Placing.
Expected timetable of the offer Publication of this Prospectus 24 March 2020
Admission and commencement of dealings in Existing OrdinaryShares and New Ordinary Shares
8am on 31 March 2020
CREST members’ accounts credited in respect of Placing Shares 31 March 2020
All references to time in this Prospectus are to London time (GMT), unless otherwise stated. Any changes tothe expected timetable will be notified by the Company through a Regulatory Information Service.
Details of admission to tradingon a regulated market
Application will be made for the Existing Ordinary Shares and the New Ordinary Shares to be admitted to aStandard Listing on the Official List and to trading on the Main Market. It is expected that Admission willbecome effective and that dealings in Ordinary Shares will commence at 8 am on 31 March 2020.
Plan for distribution The Ordinary Shares which are the subject of this Prospectus will be offered by Dowgate exclusively toQualified Investors. There will be no offer to the public of the Ordinary Shares and no intermediaries offer.
Amount and percentage ofimmediate dilution resultingfrom the offer
Shareholdings immediately prior to Admission will be diluted by approximately 400% as a result of NewOrdinary Shares issued pursuant to the Placing and the Acquisition.
Estimate of total expenses of theissue and/or offer
The expenses of the Placing will be borne by the Company in full and no expenses will be charged to anyinvestor by the Company, which are estimated to be approximately £1m (exclusive of VAT).
The total expenses (including commission and expenses payable under the Placing Agreement, registration,listing, admission fees, stamp duty, printing, advertising and distribution costs and professional advisory fees,including legal fees, and any other applicable expenses) are not expected to exceed approximately £1mexcluding VAT representing approximately 67% of the gross proceeds of the Placing of approximately£1.5m.
The total Net Placing Proceeds on this basis are approximately £0.5m.
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4.2 Why is this Prospectus being produced?
Reasons for the offer or for theadmission to trading on aregulated market
The Company is making the Acquisition, which constitutes a Reverse Takeover, and therefore requires thepublication of this Document. At the same time, the Company is conducting the Placing to raise funds tofulfil its objectives and strategy. The Company is seeking admission to trading on a regulated market toprovide liquidity to its Shareholders.
The Enlarged Group’s intention is to grow through a combination of organic growth and, where possible,selective acquisitions. The business model of supplying aquaculture equipment on long-term rental contractsrequires the Enlarged Group to fund the initial cost of manufacture and installation of the equipment whichrequires capital investment.
Use and estimated net amountof the proceeds
The placing proceeds of £1.5m million together with the cash held by the Company at 30 June 2019 of£2.841 million will be used to:
a) repay the shareholder loans of £0.460 million together with accrued interest (£0.077 million up to31 March 2020);
b) fund the planned investment in fixed assets of approximately £1.5 million over the two years to31 March 2022, primarily on new Sealfence units to be supplied to customers on rental contracts;
c) fund the estimated £0.75 million spend on the development of new aquaculture products;
d) pay the costs of the Acquisition, the preparation of this Document and the Placing of approximately£1 million; and
e) enable the Company to pursue acquisitions that will expand its geographic reach or the range ofproducts and services that it is able to offer.
Indication of whether the offeris subject to an underwritingagreement
The Placing is not being underwritten. Dowgate, as the Company’s agent, has procured irrevocablecommitments to subscribe for the full amount of Placing Shares from subscribers in the Placing, and there areno conditions attached to such irrevocable commitments other than Admission.
Indication of the most materialconflicts of interests relating tothe offer or admission to trading
Not applicable.
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PART 2
RISK FACTORS
Any investment in the Ordinary Shares is subject to a number of risks. Prospective investors shouldnote that the risks relating to the Enlarged Group, its markets and the Ordinary Shares summarised inPart 1 – (Summary) of this Document are the risks which the Directors believe to be the most essentialto an assessment by a prospective investor of whether to consider an investment in the Ordinary Shares.However, as the risks which the Enlarged Group faces relate to events and depend on circumstances thatmay or may not occur in the future, prospective investors should consider not only the information onthe key risks summarised in Part 1 – (Summary) but also the risks set out below, together with all otherinformation contained in this Document. Some of these risk factors apply to the conduct of businessgenerally in the markets in which the Enlarged Group operates, whilst others are specific to the EnlargedGroup. The categories below are not set out in any order of priority.
Additional risks and uncertainties currently unknown to the Company, or that it currently believes to beimmaterial for taking investment decisions, may also have an adverse (or materially adverse) effect on theEnlarged Group’s business. If any combination of the following risk factors materialise, the EnlargedGroup’s business, financial condition and/or operational performance could be materially adverselyaffected. In such case, the trading price of the Ordinary Shares may decline and potential investors maylose all or part of their investment. An investment in Ordinary Shares is only suitable for investorscapable of evaluating the risks and merits of such an investment and who have sufficient resources tobear any loss which may result from the investment. Accordingly, prospective investors are recommendedto obtain independent financial advice from an adviser authorised under FSMA (or another appropriatelyauthorised independent professional adviser) who specialises in advising upon investments. Investorsshould consider carefully whether an investment in the Ordinary Shares is suitable for them in light ofthe information in this Document and their personal circumstances.
1. RISKS RELATING TO THE MARKETS IN WHICH THE ENLARGED GROUP OPERATES
The products produced by the Enlarged Group may become obsolete or uncompetitive
1.1 The markets for the Existing OTAQ Group’s products, including Sealfence, are competitive. TheExisting OTAQ Group has competitors in all the markets in which it operates, many of which havegreater financial, marketing and other resources than the Enlarged Group. These competitors may adoptmore aggressive pricing policies or undertake more extensive marketing campaigns. Actions bycompetitors may have a negative impact on sales volumes or profit margins achieved by the EnlargedGroup in the future. The Enlarged Group may not be able to maintain or increase the price of itsproducts due to competitive pressures in the market.
1.2 The Enlarged Group would face an increase in competition if existing competitors expanded or if therewere new entrants in the markets in which it operates or plans to operate. In order to continue togrow, the Enlarged Group intends to improve its existing range of products and develop new products.The Enlarged Group’s products operate in physically harsh environments and competitive markets.There are risks that the Enlarged Group’s new products do not meet the specification required bycustomers and/or cannot be supplied profitably by the Enlarged Group.
1.3 In addition, alternative competing technologies to the Existing OTAQ Group’s technology (includingSealfence) exist and are in use today. Further products could emerge which might reduce the marketopportunity for the products offered by or planned to be offered by the Enlarged Group.
Concerns about Environmental impact of the Enlarged Group’s products may negatively affect thebusiness of the Enlarged Group
1.4 There has been some recent limited negative media attention on the impact of acoustic deterrentdevices (“ADDs”) on seals and other marine animals. The Company believes, and independent studieshave shown, that the operation of the Enlarged Group’s products present a negligible risk of harmingeither predators or nearby marine mammals. However, there is a risk that misinformation aboutpossible adverse effects of ADDs may slow the growth of the Enlarged Group’s business by eithercausing customers to avoid using ADDs due to consumer pressure or increasing regulation in thesector.
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1.5 There are at present three jurisdictions in which the Existing OTAQ Group currently operates wherelicenses are required by the Existing OTAQ Group for the sale or rental of their products. However, insome jurisdictions, whilst it is not a requirement for the Existing OTAQ Group’s products to belicensed, the operator of the products (the fish farmers) must obtain a licence an aspect of which couldinclude use of ADDs. The Existing OTAQ Group has made extensive efforts to collaborate wherepossible with environmental agencies and governmental bodies to ensure, where possible, that itsviews on ADDs are represented when new regulations and guidelines are being adopted.
1.6 There is no guarantee that the current regulatory regime in the UK or elsewhere in respect of ADDswill continue. In addition, in some jurisdictions such as the West Coast of Canada, the use of ADDsin fish farms is not permitted. Changes in legislation or regulation, particularly as it relates to theEnlarged Group’s aquaculture products, could adversely affect the Enlarged Group’s profitability andgrowth prospects.
There is currently civil and political unrest in Chile which will impact on the Enlarged Group’soperations there
1.7 There has been civil unrest in Chile in 2019 which has had an impact on the Existing OTAQ Group’sexpansion plans in Chile in the current financial year. The position in Chile now appears to be stableand the Existing OTAQ Group continues to make progress in Chile. If there is a material deteriorationin the political environment in Chile that results in a sustained period of civil unrest this may have anadverse effect on the growth prospects of the Enlarged Group.
The Enlarged Group’s performance could be adversely affected by poor economic conditions
1.8 The Existing OTAQ Group derives most of its aquaculture revenues and profits from salmon farmingcompanies in Scotland and is therefore sensitive to fluctuations in the demand for and the price ofScottish salmon. The other major market in which the Enlarged Group will operate is offshore oil andgas where levels of activity are sensitive to the prices of oil and gas which are global commodities.The Enlarged Group’s performance depends to a certain extent on a number of factors outside of thecontrol of the Enlarged Group which impact on, among other things, consumer spending, political andeconomic conditions, gross domestic product growth, unemployment rate, consumer confidence, creditconditions, interest rates, taxation, regulatory changes, oil prices and terrorist attacks. Each of thesefactors or a combination of them could have an adverse effect on the financial performance of theEnlarged Group.
Changes in legislation and regulation in relation to trading may impact the Enlarged Group’s tradingprospects
1.9 In the aquaculture market the Existing OTAQ Group’s products and its customers are subject to a highdegree of regulation that extends beyond the territories in which the Existing OTAQ Group and itscustomers are based. Any changes which are made in tariffs, quotas, taxes, legislation or regulationswhich affect or relate to trading arrangements between the Enlarged Group and its customers or thesale of products by its customers into their end markets could have an adverse effect on the businessof the Enlarged Group.
For example, new regulations in the USA adopted pursuant to the US Marine Mammal ProtectionAct 1971 have placed restrictions on the import of salmon into the USA from fisheries whichintentionally kill or cause serious injury to marine mammals. The Existing OTAQ Group does notconsider that these regulations will prohibit or have any effect on fish farms which use ADDs,However, similar regulations in a particular jurisdiction which are aimed at Salmon farmed usingADDs could lead to decreased use of the Enlarged Group’s products.
Changes in legislation or regulation, particularly as it relates to the Enlarged Group’s aquacultureproducts, could adversely affect the Enlarged Group’s profitability and growth prospects. The Companyis aware that the regulatory position relating to use of ADDs in Chile is currently being assessed.OTAQ GL is working with Subpesca (Undersecretariat of Fisheries and Aquaculture – Government ofChile) (“Subpesca”) the Chilean regulator for fisheries and aquaculture, in assisting them inunderstanding the risk of ADD use to predators and marine mammals in the vicinity of fish farms.Whilst the Enlarged Group is confident in the safety of its Sealfence products, the Company considersthat working with Subpesca in assisting them to understand the position is helpful. However, if the
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Chilean regulator ultimately does not accept the Company’s position and bans or restricts use of theSealfence product in Chile, this could have a serious detrimental effect on the Company’s expansionplans in Chile.
Brexit and Scottish Independence
1.10 The Existing OTAQ Group imports most of the components used in its products from Asia andlimited amounts from counties inside the European Union. There are alternative suppliers forcomponents sourced from the European Union.
A substantial proportion of the Existing OTAQ Group’s sales of aquaculture products and offshore oiland gas products are sold in Scotland. In addition, OTAQ Offshore is based in Aberdeen. There is arisk of a further Scottish independence referendum that results in Scotland becoming an independentcountry. Depending on what arrangements were to be put in place relating to trade between Scotlandand the rest of what is currently the United Kingdom there could be a material adverse impact uponthe Enlarged Group’s revenues, profits, financial condition and prospects.
COVID-19
1.11 The Existing OTAQ Group operates primarily in Scotland and Chile. Its operations may be disruptedby the Coronavirus (COVID-19) in so far as travel restrictions may be put in place that would preventthe installation of new Sealfence units and the maintenance of existing Sealfence units. The EnlargedGroup is dependent upon two suppliers for the assembly and manufacture of its aquaculture products.Both of these manufacturers are outside the UK. In light of this and more generally, the ExistingOTAQ Group, its customers and suppliers are dependent on international supply chains. If theCoronavirus results in severe disruption to international trade then the Existing OTAQ Group will beimpacted potentially with a material impact on its supply chain, sales, profits and cashflows although itis at this point it is not possible to quantify that impact.
2. RISKS RELATING TO THE ENLARGED GROUP’S BUSINESS
The planned expansion of the Enlarged Group’s business may not be achieved
2.1 The Enlarged Group plans to expand the use of its existing products into new geographic markets andto develop new products to offer to its existing customers but there can be no assurance that theEnlarged Group will be able to expand its business as planned or that the expanded business will beprofitable. Whilst the Directors believe that they have identified new geographic markets and newproducts to enable the Enlarged Group to expand unforeseen factors could result in the failure to growor to grow profitably which could adversely affect its future financial performance.
The Enlarged Group is exposed to the risks associated with leased property
2.2 The Company has made certain assumptions about future rent reviews in respect of the EnlargedGroup’s leasehold property. If rent reviews were to be agreed at rates materially higher than currentlyanticipated, there could be an adverse impact on the Enlarged Group’s financial performance.
2.3 In addition, as all of the Enlarged Group’s properties are leasehold or occupied under licence, there isa risk that the leases may not be renewed in due course. This would result in additional costs beingincurred in selecting appropriate alternative premises and relocating to them and there is a risk thatsuitable alternative premises may not be available.
Any failure or interruptions in the Enlarged Group’s information technology systems could have amaterial adverse effect on the operations of the Enlarged Group
2.4 The Existing OTAQ Group is reliant on its IT systems for the provision of information regarding mostaspects of its financial and operational performance, including sales and stock information. Disasterrecovery plans and contingency plans have been prepared by the Existing OTAQ Group but there canbe no certainty that such plans will be effective in the event that they need to be activated. Suppliersof hardware and software systems are vetted to assess their ability to provide ongoing support andback up, but there is always a risk of interruption. The failure of these IT systems would severelyrestrict the ability of the Enlarged Group to continue to operate at its current performance levels. Eachof these matters may have an adverse effect on the financial performance of the Enlarged Group.
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The Enlarged Group may need to incur indebtedness in the future to meet its working capital needs
2.5 Following Admission, the Enlarged Group will have minimal debt and substantial cash balances. TheCompany is of the opinion that the working capital available to the Enlarged Group, taking intoaccount the Net Placing Proceeds, is sufficient for the Enlarged Group’s present requirements. In themedium-term, the Enlarged Group may seek to borrow from banks or obtain other financial products.The Enlarged Group’s ability to generate sufficient cash flow to make scheduled payments on anysuch debt will depend on future financial performance. A failure by the Enlarged Group to meet suchpayments may result in a default event in respect of the outstanding debt.
3. RISKS RELATING TO THE ENLARGED GROUP’S MANAGEMENT AND EMPLOYEES
The loss of key personnel could adversely affect the business of the Enlarged Group
3.1 The Existing OTAQ Group is dependent and the Enlarged Group will be dependent on a very limitednumber of senior managers. The departure from the Enlarged Group of any of the executive or certainsenior employees could, in have an adverse effect on the Enlarged Group’s business. Whilst theEnlarged Group has entered into service agreements with each of these people, the retention of theirservices cannot be guaranteed.
The Enlarged Group may be unable to attract and retain key personnel
3.2 Attracting, retaining and motivating suitable, high-calibre personnel is critical to the long-term successof the Enlarged Group’s business. The Enlarged Group aims to provide remuneration packages andworking conditions that will attract and retain personnel of the required calibre. The Enlarged Group’sbusinesses are dependent on recruiting and retaining staff with the necessary technical qualificationsand experience to develop, improve and market its products.
4. RISKS RELATING TO THE CUSTOMERS OF THE ENLARGED GROUP
The Existing OTAQ Group is dependent on a small number of key customers
4.1 The Enlarged Group’s aquaculture businesses are materially dependent upon the performance of alimited number of key customers who exercise significant buying power and influence. The two largestExisting OTAQ Group aquaculture customers accounted for 72 per cent of Existing OTAQ Groupturnover in the financial year ended 31 March 2019 and 44 per cent in the six months to30 September 2019.
4.2 The growth plans for the aquaculture business over the next three years are dependent upon winningnew contracts from a limited number of large aquaculture companies in the UK and Chile.Accordingly, there may be a material impact on the business of the Enlarged Group if an existingcustomer was to cease using the Enlarged Group’s products or a potential new customer were torefuse to use those products.
4.3 The Enlarged Group business model for certain products is a rental one for terms varying between 12-48 months. Unless they are renewed, the Company could suffer a reduction in revenue.
4.4 The Enlarged Group is dependent on the successful development of new products and new markets inorder to meet its growth plans.
4.5 The Enlarged Group is exposed to currency fluctuations in relation to revenue arising from certaincountries outside the UK, for example Chile. The Enlarged Group will seek to mitigate such exposurewhere appropriate, but this may not be feasible in all circumstances.
5. RISKS RELATING TO THE SUPPLY CHAIN OF THE ENLARGED GROUP’S PRODUCTS
The Existing OTAQ Group is currently dependent on a sole supplier to obtain components for a keyproduct
5.1 The Enlarged Group has, historically, been dependent on one supplier for the assembly andmanufacture of the aquaculture products which it has designed. In October 2019 the Existing OTAQGroup put in place a second supplier so that it has alternative sources of supply.
5.2 Any breakdown or change in the Enlarged Group’s relationships with suppliers or any supplierdeclining to sell products to the Enlarged Group for any reason or any supplier having financialdifficulties or going out of business and therefore not satisfying orders or product liability claimscould, in each case have an adverse effect on the Enlarged Group’s business.
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The Existing OTAQ Group sources most of its components for its products from outside the UK and EUso is affected by currency movements, transportation costs, ethical supply chain issues and any new tradebarriers
5.3 The Existing OTAQ Group sources most of the components in the products it supplies from outsidethe UK and the European Union either directly or through United Kingdom based suppliers andhence:
5.3.1 the Existing OTAQ Group purchases most of its products in pounds sterling and historicallyhas not been materially impacted by foreign exchange fluctuations. Although purchases are inpounds sterling, the Company is still indirectly the subject of risks related to international tradeincluding foreign exchange fluctuations which suppliers may seek to pass on to the ExistingOTAQ Group; In particular, the Existing OTAQ Group’s main supplier, First Millennium,sources components in US Dollars, Euros, Pounds Sterling and Japanese Yen and accordingly,currency movements in respect of each of these are of particular note to the Company.
5.3.2 products supplied by or components purchased by the Existing OTAQ Group are transported bya variety of means and any material changes in freight rates or any material transportationdisruptions could have a serious effect on the financial performance of the Enlarged Group;
5.3.3 the Existing OTAQ Group does not currently operate an ethical policy with its componentsuppliers regarding products that are supplied to it or monitor the manufacturing and otherpractices and facilities of its component suppliers. Accordingly, there are risks associated with alack of such a policy and any disruption to the business and its financial performance whichcould be caused by any ethical issues arising from the activities of any component supplier;and
5.3.4 there are potential political risks, such as the imposition of tariffs, trade barriers or sanctionsrelating to both countries which supply the Enlarged Group with components and/or countriesinto which the Enlarged Group supplies products which, if they occur, could in each caseadversely affect the Enlarged Group’s financial performance.
Suppliers may not meet quality standards and specifications
5.4 The Existing OTAQ Group requires its suppliers to satisfy certain standards regarding the quality andspecification of its products. However, in the event of a product recall being required in circumstanceswhere the financial consequences are not borne by a supplier, it may have a material effect on thefinancial performance of the Enlarged Group.
5.5 In turn, the Enlarged Group may be involved in product liability claims or product recalls and couldbe negatively affected if its customers or regulators lose confidence in the safety and quality of itsproducts.
6. RISKS RELATING TO THE ORDINARY SHARES
Ordinary Shares may not be a suitable investment
6.1 The Ordinary Shares may not be a suitable investment for all the recipients of this Document. Beforemaking a final decision, investors are advised to consult an appropriate independent investment adviserauthorised under FSMA who specialises in advising on the acquisition of shares and other securities.The value of the Ordinary Shares and the income received from them can go down as well as up andinvestors may get back less than their original investment.
There may be no or very limited public trading market for the Ordinary Shares, notwithstanding theEnlarged Group’s intention to be admitted to trading on the Main Market of the London StockExchange. A market for the Ordinary Shares may not develop which would adversely affect theliquidity and price of the Ordinary Shares.
6.2 Prior to the date of this Document there has been very limited public trading market for the OrdinaryShares. The Placing Price may not be indicative of the market price of the Existing Ordinary Sharesor the New Ordinary Shares following Admission.
Although the Company has applied to the Financial Conduct Authority for Admission of its ExistingOrdinary Shares and the New Ordinary Shares to the Official List and has applied to the LondonStock Exchange for Admission of the Ordinary Shares to trading on the London Stock Exchange’sMain Market for listed securities, there is no assurance that an active trading market for the Ordinary
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Shares will develop or, if developed, will be sustained following Admission. If an active tradingmarket does not develop or is not maintained, the liquidity and trading price of the Ordinary Sharescould be adversely affected. Even if an active trading market develops, the market price of theExisting Ordinary Share or the New Ordinary Shares may fall below the Placing Price. As a result offluctuations in the market price of an Ordinary Share, investors may not be able to sell their OrdinaryShares at or above the Placing Price, or at all.
The price of Ordinary Shares may fluctuate
6.3 Following Admission, the trading price of the Ordinary Shares may be subject to wide fluctuations inresponse to many factors, including those referred to in this Part, as well as stock market fluctuationsand general economic conditions or changes in political sentiment or changes in environmental impactsentiment, that may adversely affect the market price of the Ordinary Shares regardless of theCompany’s actual performance or condition in its key markets.
Publicly traded securities from time to time experience significant price and volume fluctuations thatmay be unrelated to the operating performance of the companies that have issued them. In addition,the market price of the Ordinary Shares may prove to be highly volatile. The market price of theOrdinary Shares may fluctuate significantly in response to a number of factors, some of which arebeyond the Company’s control. These may, without limitation, include variations in operating results inthe Enlarged Group’s reporting periods; changes in financial estimates by securities analysts; changesin market valuation of similar companies; announcements by the Enlarged Group of significantcontracts, acquisitions, strategic alliances, joint ventures or capital commitments; additions ordepartures of key personnel; any shortfall in turnover or net profit or any increase in losses fromlevels expected by securities analysts; and future issues or sales of Ordinary Shares. Any or all ofthese events could result in a material decline in the price of the Ordinary Shares.
Ordinary Shares eligible for future sale may have an effect on the market price
6.4 The Company cannot predict what effect, if any, future sales of Ordinary Shares, or the availability ofOrdinary Shares for future sale, will have on the market price of Ordinary Shares. Sales of substantialamounts of Ordinary Shares in the public market following Admission, or the perception that suchsales could occur, could adversely affect the market price of Ordinary Shares and may make it moredifficult for investors to sell their Ordinary Shares at a time and price which they deem appropriate.
Possible unavailability of pre-emption rights for United States holders of Ordinary Shares
6.5 In the case of certain increases in the Company’s issued share capital, holders of Ordinary Shares havethe benefit of statutory pre-emption rights to subscribe for such shares, unless shareholders waive suchrights by a resolution passed at a shareholders’ meeting, or in certain other circumstances as stated inthe Articles. United States holders of shares are very likely to be excluded from exercising any suchpre-emption rights they may have, unless a registration statement under United States legislation iseffective with respect to those rights, or an exemption from the registration requirements under thatlegislation is available. The Company is unlikely to file any such registration statement, and theCompany cannot assure prospective investors that any exemption from those registration requirementswould be available to enable United States or other overseas shareholders to exercise such pre-emptionrights or, if available, that the Company will utilise any such exemption.
Effect of exchange rate fluctuations
6.6 The Ordinary Shares are, and any dividends to be paid in respect of them will be, denominated inpounds sterling. An investment in Ordinary Shares by an investor whose principal currency is notpounds sterling exposes the investor to foreign currency exchange rate risk. Any depreciation ofpounds sterling in relation to such foreign currency will reduce the value of the investment in theOrdinary Shares or any dividends in foreign currency terms and any appreciation of pounds sterlingwill increase the value in foreign currency terms. In particular, the Existing OTAQ Group’s mainsupplier, First Millennium, sources components in US Dollars, Euros, Pounds Sterling and JapaneseYen and accordingly, currency movements in respect of each of these are of particular note to theEnlarged Group.
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7. RISKS RELATING TO TAXATION
Taxation of returns from assets located outside of the UK may reduce any net return to investors
7.1 To the extent that the assets, company or business which the Company acquires is or are establishedoutside the UK, it is possible that any return the Company receives from it may be reduced byirrecoverable foreign withholding or other local taxes and this may reduce any net return derived byinvestors from a shareholding in the Company.
Changes in tax law and practice may reduce any net returns for investors
7.2 The tax treatment of Shareholders of the Company, any special purpose vehicle that the Company mayestablish and any company which the Company may acquire are all subject to changes in tax laws orpractices in England and Wales and Scotland or any other relevant jurisdiction. Any change mayreduce any net return derived by investors from a shareholding in the Company.
7.3 Investors should not rely on the general guide to taxation set out in this Document and should seektheir own specialist advice. The tax rates referred to in this Document are those currently applicableand they are subject to change.
There can be no assurance that the Company will be able to make returns to Shareholders in a tax-efficient manner
7.4 It is intended that the Company will structure the Enlarged Group, including any company or businessacquired, to maximise returns for Shareholders in as fiscally efficient a manner as is practicable. TheCompany has made certain assumptions regarding taxation. However, if these assumptions are notcorrect, taxes may be imposed with respect to the Company’s assets, or the Company may be subjectto tax on its income, profits, gains or distributions (either on a liquidation and dissolution orotherwise) in a particular jurisdiction or jurisdictions in excess of taxes that were anticipated. Thiscould alter the post-tax returns for Shareholders (or Shareholders in certain jurisdictions). The level ofreturn for Shareholders may also be adversely affected. Any change in laws or tax authority practicescould also adversely affect any post-tax returns of capital to Shareholders or payments of dividends (ifany, which the Company does not envisage the payment of, at least in the short to medium term). Inaddition, the Company may incur costs in taking steps to mitigate any such adverse effect on the post-tax returns for Shareholders.
8. OTHER RISKS
Forward-looking statements
8.1 This Document includes statements that are, or may be deemed to be, “forward-looking statements”.These forward-looking statements can be identified by the use of forward-looking terminology,including the terms “believes”, “estimates”, “plans”, “anticipates”, “targets”, “aims”, “continues”,“projects”, “assumes”, “expects”, “intends”, “may”, “will”, “would” or “should”, or in each case,their negative or other variations or comparable terminology. These forward-looking statements includeall matters that are not historical facts. They appear in a number of places throughout this Documentand include statements regarding the Enlarged Group’s intentions, beliefs or current expectationsconcerning, among other things, the Enlarged Group’s results of operations, financial condition,liquidity, prospects, growth strategies and the industries in which the Enlarged Group operates. Bytheir nature, forward-looking statements involve risk and uncertainty because they relate to futureevents and circumstances. A number of factors could cause actual results and developments to differmaterially from those expressed or implied by the forward-looking statements, including withoutlimitation: conditions in the markets, market position of the Enlarged Group, earnings, financialposition, cash flows, return on capital, anticipated investments and capital expenditures, changingbusiness or other market conditions and general economic conditions. These and other factors couldadversely affect the outcome and financial effects of the plans and events described in this Document.Forward-looking statements contained in this Document based on past trends or activities should notbe taken as a representation that such trends or activities will continue in the future.
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Operational risks
8.2 Operational risks, which are inherent in all business activities, include those which mainly result froma potential breakdown in individual business units or the Enlarged Group’s control of its human,physical and operating resources. The potential financial or reputational loss arising from failures ininternal controls, flaws or malfunctions in computer systems or products supplied by the EnlargedGroup, all fall within this category.
Investors may not be able to realise returns on their investment in Ordinary Shares within a period thatthey would consider to be reasonable
8.3 Investments in Ordinary Shares may be relatively illiquid. There may be a limited number ofShareholders and this factor, together with the number of New Ordinary Shares to be issued maycontribute to both infrequent trading in the Ordinary Shares on the London Stock Exchange and tovolatile Ordinary Share price movements. Investors should not expect that they will necessarily be ableto realise their investment in Ordinary Shares within a period that they would regard as reasonable.Accordingly, the Ordinary Shares may not be suitable for short-term investment. Admission should notbe taken as implying that there will be an active trading market for the Ordinary Shares. Even if anactive trading market develops, the market price for the Ordinary Shares may fall below the PlacingPrice.
Compliance costs
8.4 The costs to the Company of complying with the continuing obligations under the Listing Rules,Prospectus Regulation Rules and Disclosure Guidance and Transparency Rules will be financiallysignificant due to the Company’s relative size and these costs might prove financially onerous.
8.5 The Company’s listing might be cancelled if the Company fails to comply with its continuingobligations under the Listing Rules.
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PART 3
IMPORTANT INFORMATION
The distribution of this Prospectus and the Placing may be restricted by law in certain jurisdictions andtherefore persons into whose possession this Document comes should inform themselves about and observeany restrictions including those set out below. Any failure to comply with these restrictions may constitute aviolation of the securities laws of any such jurisdiction.
1. GENERAL
1.1 No action has been or will be taken in any other jurisdiction that would permit a public offering ofthe Ordinary Shares, or possession or distribution of this Document or any other offering material inany other country or jurisdiction where action for that purpose is required. Accordingly, the OrdinaryShares may not be offered or sold, directly or indirectly, and neither this Document nor any otheroffering material or advertisement in connection with the Ordinary Shares may be distributed orpublished in or from any country or jurisdiction except under circumstances that will result incompliance with any and all applicable rules and regulations of any such country or jurisdiction. Anyfailure to comply with these restrictions may constitute a violation of the securities laws of any suchjurisdiction. This Document does not constitute an offer to subscribe for any of the Ordinary Sharesoffered hereby to any person in any jurisdiction to whom it is unlawful to make such offer orsolicitation in such jurisdiction.
1.2 This Document has been approved by the FCA as a prospectus which may be used to offer securitiesto the public for the purposes of section 85 of FSMA, and of the Prospectus Regulation. Noarrangement has however been made with the competent authority in any other EEA Member States(or any other jurisdiction) for the use of this Document as an approved prospectus in such jurisdictionand accordingly no public offer is to be made in such jurisdiction. Issue or circulation of thisProspectus may be prohibited in Restricted Jurisdictions and in countries other than those in relation towhich notices are given below.
2. WITHDRAWAL RIGHTS
2.1 In the event that the Company is required to publish any supplementary prospectus, applicants whohave applied to subscribe for or purchase Placing Shares in the Placing will have at least twoBusiness Days following the publication of the supplementary prospects within which to withdrawtheir offer to acquire Placing Shares in the Placing in its entirety. If the application is not withdrawnwithin the stipulated period, any offer to apply for Placing Shares in the Placing will remain valid andbinding. Details of how to withdraw an application will be made available if a supplementaryprospectus is published. Any supplementary prospectus will be published in accordance with theProspectus Regulation Rules (and notification thereof will be made to a Regulatory InformationService) but will not be distributed to investors individually. Any such supplementary prospectus willbe published in printed form and available free of charge at the Company’s registered office at 16Great Queen Street, London WC2B 5DG and (subject to certain restrictions) on the Company’swebsite at www.hertsford-capital.com until 14 days after Admission.
3. FOR THE ATTENTION OF ALL INVESTORS
3.1 In deciding whether or not to invest in Ordinary Shares, prospective Placees should rely only on theinformation contained in this Document. No person has been authorised to give any information ormake any representations other than as contained in this Document and, if given or made, suchinformation or representations must not be relied on as having been authorised by the Company, theDirectors or Dowgate. Without prejudice to the Company’s obligations under FSMA, the ProspectusRegulation Rules, the Listing Rules and the Disclosure Guidance and Transparency Rules, neither thedelivery of this Document, nor any suspicion made under this Document shall, under anycircumstances, create any implication that there has been no change in the affairs of the Companysince the date of this Document or that the information in this Document is correct as at any timeafter its date.
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3.2 In making an investment decision, prospective investors must rely on their own examination of theCompany, this Document and the terms of the Placing, including the merits and risks involved. Thecontents of this Document are not to be construed as advice relating to legal, financial, taxation,accounting, regulatory, investment or any other matter.
3.3 Prospective investors must rely upon their own representatives, including their own legal and financialadvisers and accountants, as to legal, tax, financial, investment or any other related matters concerningthe Company and an investment therein.
3.4 An investment in the Company should be regarded as a long-term investment. There can be noassurance that the Company’s objectives, financing and business strategies will be achieved.
3.5 It should be remembered that the price of the Ordinary Shares and any income from such OrdinaryShares can go down as well as up.
3.6 This Prospectus should be read in its entirety before making any investment in the Ordinary Shares.All Shareholders are entitled to the benefit of, are bound by, and are deemed to have notice of, theprovisions of the Articles of Association, which prospective investors should review. A summary ofthe Articles is set out in 5 of Part 14 (Additional Information) and a copy of the Articles is availablefor inspection at the Company’s registered office, 16 Great Queen Street, London WC2B 5DG.
4. INFORMATION TO DISTRIBUTORS
4.1 Solely for the purposes of product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended (“MiFID II”); (b) Articles 9 and 10 ofCommission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementingmeasures (together, the “MiFID II Product Governance Requirements”), and disclaiming all and anyliability, whether arising in tort, contract or otherwise, which any “manufacturer” for the purposes ofthe MiFID II Product Governance Requirements) may otherwise have with respect thereto, theOrdinary Shares have been subject to a product approval process, which has determined that theOrdinary Shares are: (i) compatible with an end target market of retail investors and investors whomeet the criteria of professional clients and eligible counterparties, each as defined by MiFID II (the“Target Market Assessment”). Notwithstanding the Target Market Assessment, distributors shouldnote that: the price of the Ordinary Shares offer no guaranteed income and no capital protection; andan investment in the Ordinary Shares is compatible only with investors who do not need a guaranteedincome or capital protection, who (either alone or in conjunction with an appropriate financial or otheradviser) are capable of evaluating the merits and risks of such an investment and who have sufficientresources to be able to bear any losses that may result therefrom. The Target Market Assessment iswithout prejudice to the requirements of any contractual, legal or regulatory selling restrictions inrelation to the Placing. Furthermore, it is noted that, notwithstanding the Target Market Assessment,Dowgate will only procure investors who will meet the criteria of professional clients and eligiblecounterparties.
4.2 For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment ofsuitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor orgroup of investors to invest in, or purchase, or take any other action whatsoever with respect to, theOrdinary Shares.
4.3 Each distributor is responsible for undertaking its own target market assessment in respect of theOrdinary Shares and determining appropriate distribution channels.
5. SELLING RESTRICTIONS
5.1 The distribution of this Document and the offer of Ordinary Shares in certain jurisdictions may berestricted by law and therefore persons into whose possession this Document comes should informthemselves about and observe any restrictions, including those set out in the paragraphs that follow.Any failure to comply with these restrictions may constitute a violation of the securities laws of anysuch jurisdiction. No action has been or will be taken in any jurisdiction that would permit a publicoffering of the Ordinary Shares, or possession or distribution of this Document or any other offeringmaterial in any country or jurisdiction where action for that purpose is required. Accordingly, theOrdinary Shares may not be offered or sold, directly or indirectly, and neither this Document nor anyother offering material or advertisement in connection with the Ordinary Shares may be distributed orpublished in or from any country or jurisdiction except in circumstances that will result in compliancewith any and all applicable rules and regulations of any such country or jurisdiction. Persons into
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whose possession this Document comes should inform themselves about and observe any restrictionson the distribution of this Document and the offer of Ordinary Shares contained in this Document.Any failure to comply with these restrictions may constitute a violation of securities laws of any suchjurisdiction. This Document does not constitute an offer to subscribe for or purchase any of theOrdinary Shares to any person in any jurisdiction to whom it is unlawful to make such offer ofsolicitation in such jurisdiction.
6. UNITED STATES
6.1 The Ordinary Shares have not been and will not be registered under the US Securities Act, or thesecurities laws of any state or other jurisdiction of the United States. Subject to certain exceptions, theOrdinary Shares may not be offered, sold, resold, transferred or distributed, directly or indirectly,within, into or in the United States or to or for the account or benefit of persons in the United States.
6.2 The Ordinary Shares may not be taken up, offered, sold, resold, transferred, or distributed, directly orindirectly within, into or in the United States except pursuant to an exemption from, or in atransaction that is not subject to, the registration requirements of the US Securities Act. There will beno public offer in the United States.
6.3 The Company has not been and will not be registered under the US Investment Company Actpursuant to the exemption provided by Section 3 I (7) thereof, and Investors will not be entitled to thebenefits of the US Investment Company Act.
6.4 The Ordinary Shares have not been approved or disapproved by the US Securities and ExchangeCommission, any State securities commission in the United States or another US regulatory authority,nor have any of the foregoing authorities passed comment upon or endorsed the merits of the Placingor adequacy of this Document. Any representations to the contrary is a criminal offence in the UnitedStates.
7. EUROPEAN ECONOMIC AREA
7.1 Pursuant to the Prospectus Regulation, an offer to the public of the Ordinary Shares may only bemade once the prospectus has been passported in an EEA Member State in accordance with theProspectus Regulation. For any other EEA Member State an offer to the public in that EEA MemberState of any Ordinary Shares may only be made at any time under the following exemptions underthe Prospectus Regulation, if they have been implemented in that EEA Member State:
7.1.1 to any legal entity which is a Qualified Investor, within the meaning of Article 2 (e) of theProspectus Regulation;
7.1.2 to fewer than 150 natural or legal persons (other than Qualified Investors, within the meaningof Article 2 (e) of the Prospectus Regulation) in such EEA Member State subject to obtainingprior consent of the Company for any such offer; or
7.1.3 in any other circumstances falling within Article 1(4) of the Prospectus Regulation,
provided that no such offer of Ordinary Shares shall result in a requirement of for the publication bythe Company of a prospectus pursuant to Article 3 of the Prospectus Regulation and each person whoinitially acquires Ordinary Shares or to whom any offer is made will be deemed to have represented,warranted and agreed with Dowgate and the Company that it is a “Qualified Investor” within themeaning of Article 2 (e) of the Prospectus Regulation.
7.2 For the purposes of this provision, the expression an “offer to the public” in relation to any offer ofOrdinary Shares in any EEA Member State means the communication in any form and by any meansof sufficient information on the terms of the offer and any Ordinary Shares to be offered so as toenable an investor to decide to purchase or subscribe for the Ordinary Shares.
7.3 This Document may not be used for, or in connection with, and does not constitute, any offer ofOrdinary Shares or an invitation to purchase or subscribe for Ordinary Shares in any EEA MemberState in which such offer or invitation would be unlawful.
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8. UNITED KINGDOM
8.1 This Document comprises a prospectus relating to the Company prepared in accordance with theProspectus Regulation Rules and approved by the FCA under section 87A of FSMA. This Documenthas been filed with the FCA and made available to the public in accordance with Rule 3.2 of theProspectus Regulation Rules.
8.2 This Document is being distributed only to and is directed at persons who (if they are in the EEA)will fall within one of the categories of persons set out above in the paragraph entitled ‘EuropeanEconomic Area’. In addition, this Document is being distributed only to and is directed at persons inthe UK who are (i) persons having professional experience in matters relating to investments fallingwithin the definition of ‘investment professionals’ in Article 19(5) of the Financial Services andMarkets Act 2000 (Financial Promotion Order) 2005 (the “Order”); or (ii) persons who are high networth bodies corporate, unincorporated associations and partnerships and the trustees of high valuetrusts, as described in Article 49(2)(a) to (d) of the Order; or (iii) persons to whom it may otherwisebe lawful to distribute.
9. FORWARD LOOKING STATEMENTS
9.1 This Document includes statements that are, or may be deemed to be, ‘forward looking statements’. Insome cases, these forward-looking statements can be identified by the use of forward-lookingterminology, including the terms ‘targets’, ‘believes’, ‘estimates’, ‘anticipates’, ‘expects’, ‘intends’,‘may’, ‘will’, ‘should’, or, in each case, their negative or other variations or comparable terminology.They appear in a number of places throughout this Document and include statements regarding theintentions, beliefs or current expectations of the Company and the Board concerning, inter alia: (i) theCompany’s objective, financing and business strategies, results of operations, financial condition,capital resources, prospects, capital appreciation of the Ordinary Shares and dividends; and (ii) futuredeal flow and implementation of active management strategies. By their nature, forward-lookingstatements involve risks and uncertainties because they relate to events and depend on circumstancesthat may or may not occur in the future. Forward-looking statements are not guarantees of futureperformance. The Company’s actual performance, results of operations, financial condition and thedevelopment of its financing strategies may differ materially from the forward-looking statementscontained in this Document. In addition, even if the Company’s actual performance, results ofoperations, financial condition, distributions to Shareholders and the development of its financingstrategies are consistent with the forward-looking statements contained in this Document, those resultsor developments may not be indicative of results or developments in subsequent periods.
9.2 Prospective investors should carefully review Part 2 (Risk Factors) of this Document for a discussionof additional factors that could cause the Enlarged Group’s actual results to differ materially, beforemaking an investment decision. For the avoidance of doubt, nothing appearing under the heading‘Forward-looking statements’ constitutes a qualification of the working capital statement set out inparagraph 22 of Part 14 (Additional Information) of this Document.
9.3 Forward-looking statements contained in this Document apply only as at the date of this Document.Subject to any obligations under the Listing Rules, the Market Abuse Regulation, the DisclosureGuidance and Transparency Rules and the Prospectus Regulation Rules, the Company undertakes noobligation publicly to update, or review any forward-looking statements, whether as a result of newinformation, future developments or otherwise.
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PART 4
DIRECTORS, COMPANY SECRETARY AND ADVISERS
Directors Harry Abraham Hyman (to resign on Admission)Rodger David Sargent (to resign on Admission)Sarah Emily Gills (continuing)Alexander Robert Hambro (continuing)
Proposed Directors Philip David NewbySimon Howard WaltersGeorge Watt
Company Secretary Rodger David Sargent (to resign on Admission)
Proposed Company Secretary Simon Howard Walters
Registered office and directors’address
c/o Fladgate LLP16 Great Queen StreetLondonWC2B 5DG
Proposed registered and headoffice and directors’ address
8-3-4 Harpers Mill South RoadWhite CrossLancasterLA1 4XF
Financial adviser and broker Dowgate Capital Limited15 Fetter LaneLondonEC4A 1BW
Auditors to the Company Haysmacintyre LLP10 Queen Street PlaceLondonEC4R 1AG
Financial Adviser to the Company EGR Broking15-17 Eldon StreetLondonEC2M 7LD
Auditors to the Existing OTAQGroup
RSM UK Audit LLP3 Hardman StreetManchesterM3 3HF
Solicitors to the Existing OTAQGroup
CMS Cameron McKenna Nabarro Olswang LLP1 West Regent StreetGlasgowG2 1AP
Solicitors to the Company Fladgate LLP16 Great Queen StreetLondonWC2B 5DG
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Solicitors to Dowgate Fieldfisher LLPRiverbank House2 Swan LaneLondonEC4R 3TT
Principal bankers to the Company Arbuthnot Latham & Co LimitedArbuthnot House7 Wilson StreetLondonEC2M 2SN
Principal bankers to OTAQ GroupLimited
Barclays Bank plc38 FishergatePrestonLancashirePR1 2AD
Registrars and receiving agents Share Registrars LimitedThe Courtyard17 West StreetFarnhamSurreyGU19 7DR
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PART 5
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Announcement of the Acquisition and Placing 10 March 2020
Posting of the Circular (which includes notice of the General Meeting)and the Form of Proxy
10 March 2020
Publication of this Document 24 March 2020
The General Meeting 27 March 2020
Placing funds due from Placees applying for Ordinary Shares inCREST
30 March 2020
Admission and commencement of dealings 8am 31 March 2020
Ordinary Shares to be issued in uncertificated form credited tostock accounts in CREST
31 March 2020
Ordinary Share certificates (for Placing Shares) despatched in weekcommencing
6 April 2020
Each of the times and dates in the above timetable is subject to change. All times are London times unlessstated otherwise.
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PART 6
PLACING STATISTICS
Number of Existing Ordinary Shares in issue 32,000,001
Number of Ordinary Shares in issue immediately following theConsolidation
6,400,001
Number of Ordinary Shares of 15p each to be issued upon completionof the Acquisition
21,539,904
Issue Price of the Consideration Shares 57.5 pence
Number of Placing Shares 2,608,694
Placing Price 57.5 pence
Enlarged Ordinary Share Capital immediately on Admission 30,548,599
Consideration Shares as a percentage of the Enlarged Ordinary ShareCapital immediately on Admission
70.51 per cent.
Placing Shares as a percentage of the Enlarged Ordinary Share Capitalimmediately on Admission
8.54 per cent.
Maximum number of Ordinary Shares of 15p each that may be issuedupon the exercise of the Options
1,481,912
Maximum number of Ordinary Shares of 15p each that may be issuedupon the exercise of the Warrants
320,000
Enlarged Ordinary Share Capital immediately after the issue of allConsideration Shares and upon the exercise of all Options and Warrants
32,350,511
Market Capitalisation of the Company at the Placing Price onAdmission
c. £17.6 million
Estimated gross proceeds of the Placing c. £1.5 million
Estimated proceeds of the Placing (net of expenses of the Acquisitionand the Placing)
c. £0.5 million
New ISIN GB00BK6JQ137
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PART 7
INFORMATION ON THE ENLARGED GROUP
Unless otherwise stated, the financial information relating to the Enlarged Group included in this part of theDocument has been extracted without material adjustment of this document from the Historical FinancialInformation in Part 8 of this Document, the Unaudited Proforma Financial Information in Part 10 and theUnaudited Interim Financial Information in Part 11 of this Document.
1. INTRODUCTION
The principal activities of the Enlarged Group will be the design, development, provision and supportof marine technology for use in the aquaculture industry and the offshore oil and gas industry. Thecore aquaculture products deter predator attacks on salmon farms and the Existing OTAQ Group has anumber of other products in development designed to deal with specific operational challenges facingsalmon farmers.
2. VISION
The Enlarged Group’s vision is to become the market leader in the design and provision of technologyand data driven solutions and services to improve the effectiveness of the aquaculture industry,specifically the salmon farming industry. The Enlarged Group is also seeking to expand activities inthe offshore oil and gas markets inside and outside of the UK particularly in relation to the sale of itsunderwater connectors.
3. BUSINESS OVERVIEW
3.1 Principal business activities
The Existing OTAQ Group supplies products to two industries:
(a) aquaculture and in particular salmon farming, principally in Scotland and Chile; and
(b) offshore oil and gas, predominantly in the North Sea but historically has included othergeographies.
Salmon farms often operate in harsh and remote coastal environments, with salmon stocks in manylocations frequently subject to attacks by predator animals, usually seals and sea lions.
Commercial salmon farming in Norway and Scotland started in the early 1970s and is now in 15countries around the world. There has been significant investment and consolidation in the salmonfarming industry over the past 10 years. The industry is now dominated by major multinationals withthe largest salmon farmer globally being MOWI, a Norwegian company with annual revenues of€3.8 billion, EBIT of €925 million and 14,500 employees (Source: MOWI 2018 Annual Report andAccounts).
Sealfence, the current core aquaculture product that the Existing OTAQ Group supplies, principallythrough fixed term rental contracts, significantly improves yields for the salmon farming industry byusing acoustic technology to reduce the frequency of predator attacks.
Through recent acquisitions, the Existing OTAQ Group now also has expertise in underwater cameras,laser measuring devices and high integrity electrical connectors currently used in the offshore oil &gas and other markets. The primary strategy behind these acquisitions was to secure additionaltechnology and engineering expertise to develop further products and solutions to address some of theother issues the aquaculture industry faces.
The Existing OTAQ Group has a number of such products in the early stages of developmentincluding a plankton/algal bloom early detection system and an active biomass measurement system.The technology in respect of these products was demonstrated in August 2019 at AquaNor (theworld’s largest aquaculture trade show). However, it is not expected that commercial production ofthese technologies will be possible for at least two years.
Although the Existing OTAQ Group still makes a small number of aquaculture equipment sales, itrestructured its business model during 2015 to focus primarily on supplying its equipment on fixed-term rental contracts with the Existing OTAQ Group responsible for installation, servicing anddecommissioning.
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The Existing OTAQ Group has aquaculture equipment operating in diverse geographical areasincluding Scotland, Chile, Scandinavia and Russia and is working with potential clients in Ireland,Australia and Canada.
3.2 Existing Operations
The Existing OTAQ Group is headquartered in Lancaster, England with additional locations in the UKin Aberdeen, Scotland and Ulverston, England. There is also an office in Puerto Montt in Chile.
Aquaculture
The first aquaculture product which the Existing OTAQ Group has marketed is Sealfence which waslaunched in 2013.
Sealfence is an ultrasonic deterrent system designed to deter seals and sea lions from marine fishfarming sites. Since the first sale of a Sealfence system in 2013, the number of systems in operationhas grown rapidly and at 31 December 2019, the Existing OTAQ Group had a base of 1,164 systemson long-term rental contracts (12 at 31 March 2015) and a further 72 systems have been sold inRussia and Finland.
Sealfence uses a unique ultrasonic soundwave delivered through a network of projectors placed aroundeach farm. These projectors work together to create an acoustic “fence” of protection designed toeliminate or reduce significantly seal and sea lion attacks. This has a range of 40m from the locationof the Sealfence device. Sealfence has, as standard, remote monitoring of the performance of thesystem that records the performance of the system and allows full control. The Existing OTAQ Groupis continuously developing and upgrading the specification of the equipment.
Whilst the system contains advanced technology it has been designed to cope with permanentinstallation on the most exposed marine fish farms. Sealfence’s modular design means no cables runbetween cages and as a result installation and any necessary repair work is relatively simple. TheSealfence system runs for up to 40 hours on battery power.
OTAQ is a recognised brand in the aquaculture industry in Scotland where the Directors believe theExisting OTAQ Group is now the market leader with a market share of over 40% of existing activesites. Clients include major multinationals such as MOWI and The Scottish Salmon Company.
Source: management information from Existing OTAQ Group.
In Chile, the second-largest producer of farmed salmon in the world, the Existing OTAQ Group hashad a presence since 2016. The Existing OTAQ Group has deployed systems with a number of majorsalmon farmers in Chile including Aquachile, Salmones Antarctica, Blumar, Yadran and Multiexportand expects significant growth in this market in the near future. The first multisite programme waslaunched in February 2019 and the second in October 2019.
The Directors believe that the Enlarged Group is well placed to become one of the global marketleaders in predator deterrent products for the salmon farming industry.
Offshore Oil and Gas
OTAQ Connectors, was established in 1997 and is located in Ulverston in Cumbria. OTAQConnectors has significant experience in the design and manufacture of underwater connector productsmainly to the offshore oil and gas industry but also in the military, nuclear and marine sectors. OTAQConnectors currently has 11 employees.
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As well as standard connector products, OTAQ Connectors also has a wealth of experience buildingcustom products for a range of customers and it offers hydrostatic pressure and gas-testing and cable-moulding and assembly of bespoke cable harnesses for a range of customers in the UK market. OTAQConnectors sells its products outright and does not have a rental model.
OTAQ Offshore was established in 2007 and is located in Aberdeen. OTAQ Offshore designs leakdetection, precision laser measurement, IP imaging cameras and custom engineering solutions thatfunction under water in hostile environments. OTAQ Offshore’s products are well respected and itsOceanSENSE leak and cement detection system is the global market leader in fluorescence-basedunderwater leak detection and has been used in over 1,000 offshore locations. OTAQ Offshore suppliescameras, laser measuring systems and leak detection equipment on short-term rental contracts and alsomakes outright sales of cameras.
3.3 Strategy and objectives
The strategy of the Enlarged Group is to build a business of significance within the aquacultureindustry focussed on helping salmon farmers become more effective and helping them overcomechallenges in their operations. Over time, the Enlarged Group intends to have a range of productsdesigned to meet these needs that are based on a common infrastructure and a cloud-based informationsystem. The strategy is to design, develop, install and support these products on an Infrastructure as aService (‘IaaS’) basis on long-term rental contracts.
The Enlarged Group believes that being in control of all material aspects of its products is importantto differentiate itself in the marketplace and develop innovative products. Using its heritage in sub-seatechnology and engineering for the offshore oil and gas markets, the Existing OTAQ Group developsand continuously improves its products using its own mechanical, electronic and software engineers,all with decades of combined experience in bringing underwater technology products to market. TheExisting OTAQ Group’s management team has many years of combined experience in aquaculture,marine and underwater technology products.
4. THE SALMON FARMING MARKET
4.1 Overview of aquaculture market
Finfish farming is a $138.5billion industry (2018) and has been growing rapidly over the past 50 yearsas shown by Table 1 below:
Table 1:
Source: United Nations FAO Report The State of World Fisheries and Aquaculture 2018
The aquaculture market is forecast to continue to grow and by 2030 to make up 62% of seafoodconsumption (Source: Prospects for Fisheries and Aquaculture – World Bank Report Number 83177-GLB of December 2013). Aquaculture produced approximately 80 million tonnes of seafood in 2016
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(excluding plants) and is forecast to grow by 37% to approximately 109 million tonnes in 2030.Aquaculture is expected to continue to be one of the faster growing major food production sectors(Source: United Nations FAO Report: The State of World Fisheries and Aquaculture 2018).
Table 2 below shows the expected growth in global seafood consumption from 2012 to 2030 and howmuch of the demand is met by wild fish versus farmed fish.
Table 2:
Source: FAO FIPS (2014) & Fish to 2030 (2013)
Table 3 below shows the expected growth in seafood production from 1990 to 2030 and howaquaculture has grown from approximately 16 million tonnes in 1990 to approximately 80 milliontonnes in 2016 and the expected growth to 107 million tonnes in 2030.
Table 3:
Source: United Nations FAO Report: The State of World Fisheries and Aquaculture 2018
4.2 Salmon Farming
Commercial salmon farming started in Norway and Scotland in the early 1970s. Commercial salmonfarming is now in 15 countries around the world including in the United States of America, Canada,Chile, the Faroe Islands, Ireland, Scotland, Norway, Russia, Australia and New Zealand Japan, Korea,Denmark, France and China. Sea trout are also farmed in Iceland and Finland.
The International Salmon Farmers Association 2018 Report states that salmon farming representsalmost $15.4 billion. This is compared with the global finfish farming industry of $138.5 billion.
The total supply of all farmed salmon was in excess of two million tonnes (GWE) in 2016 withapproximately 25,000 salmon farming cages in use globally. (Source: United Nations FAO Report TheState of World Fisheries and Aquaculture 2016).
Farmed salmon production has grown 84% between 2005–2017 and it is estimated by the World Bankthat in order to meet market requirements in 2030 it will need to continue to grow at a CAGR of 5%.(Source World Bank Report 83177 Fish to 2030, Prospects for Fisheries & AquacultureDecember 2013).
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Salmon farming is undertaken in a number of locations worldwide as shown by Table 4.
Table 4:
Source: management information from the Existing OTAQ Group.
Table 5 below shows the volume of farmed salmon produced by the five largest salmon farmingcountries.
Table 5:
Country Tonnes (000s)Norway 1200Chile 550Canada/ USA 160Scotland 140Australia/ NZ 30Others 130
Source: Marine Harvest Salmon Handbook 2018 which sites Kontali Analyyse as the source of the data.
In Chile the value of farmed fish exported is £4.22 billion (Source: Mean data compiled from Chileanregional monthly reporting on salmon production and losses. Global production of farmed salmongrew by an average of 5% from 2005 to 2017 and is expected to continue to grow at 4% per yearfrom 2018 to 2021 as shown by Table 6.
Table 6:
Source: Kontali Analyse
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The largest eleven salmon farming companies globally and their respective market shares based ontonnage (000s) is set out in Table 7 below. Existing customers of OTAQ GL are highlighted inorange.
Table 7:
Top 2019 salmon production companies in tonnage (000s)
The estimated number of active salmon farming (and all marine finfish) cages globally is set out inTable 8 below. The projections for 2022/23 are based on OBAN GL management estimates on thebasis that the number of active ages will increase by 16% from 2017/18 to 2022/23:
Table 8:
A breakdown of OTAQ GL’s revenues for the 9 months’ trading up to 31 December 2019 in respectof its Sealfence product is set out at Tables 9 and 10 below. Table 9 shows the proportion of contractson a long-term (48 month) basis compared to those on medium-short term (12-18 month) basis andthose revenues which are attributable to sales.
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Table 9
Source: management information from the Existing OTAQ Group.
Table 10:
Source: management information from the Existing OTAQ Group.
Tables 11 and 12 below show the number of licenced salmon farming sites in Scotland operated byeach of the major salmon farming companies:
Table 13 below shows the top six customers and potential customers of OTAQ GL in each ofScotland and Chile, the approximate number of cages they have, and the number of Sealfence unitseach current customer has contracted and the number of units currently installed at 31 December 2019.
Where a customer enters into a rental contract for a period of time ,the contract length can beextended if the customer chooses to request that a unit is removed while a cage is cleaned andawaiting being restocked, a “fallow period”. Hence while rentals received will be suspended during afallow period, the total number of rental payments receivable by the Company does not vary but thetiming of them does vary.
Table 13:
Customer Location* Approx. totalcage numbers
Typical OTAQContract Terms
Units currentlyinstalled
Units currentlyon contract
Top 6 customers and potential customers in Scotland
1 Scotland 564 48 month rental 336 473
2 Scotland 48 20 20
3 Scotland 540 48 month rental 487 503
4 Scotland 444Rental contracts
linked to productioncycles
24 0 – units on trial
5 Scotland 35 0 0
6 Scotland 240 0 0
Top 6 customers and potential customers in Chile
Customer Location* Approx. totalcage numbers
Typical OTAQContract Terms
Units currentlyinstalled Pipeline
1 Chile 1260 12 month rental 0 0
2 Chile 150 12 month rental 80 110
3 Chile 100 0 0
4 Chile 112 12 month rental 28 70
5 Chile 240 18 month rental 50 28
6 Chile 216 18 month rental 10 50
—————Source: management information from the Existing OTAQ Group (numbers as at 31 December 2019).Note: Approximate cage numbers are based on an average of 12 cages per site*Since 31 December 2019 14 units are on contract
4.3 Farmed salmon life-cycle
As shown in Table 11, farmed salmon live in fresh water tanks for the first three stages of their lifecycles (egg, alevin and fry or parr) and are then transferred to sea water cages as a smolt where theygrow to adult salmon.
Table 14:
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The products offered by the Existing OTAQ Group are designed for the period between a smolt beingtransferred from a hatchery to a marine cage to the harvest of a fully-grown adult.
* Smolts are typically transferred from hatcheries to sea sites when they reach a weight of 100grams to 300 grams
* Harvesting usually starts after 16 to 20 months, once the fish have reached a weight of 4kilograms to 5 kilograms
There are an estimated 2,500 to 3,000 salmon farming sites worldwide. A typical salmon farm mayhave between 8 to 30 cages on each site and each cage can contain between 40,000 and 100,000 fish.Once a cage has been harvested it will typically remain empty for a period of at least three monthsbefore being reused.
5. OPERATIONAL CHALLENGES FOR SALMON FARMERS
Salmon farmers have a number of challenges and operational issues that the Existing OTAQ Group iscurrently seeking to overcome in plankton and algal blooms, predators and stock knowledge.
Plankton and Algal Blooms
Plankton and algal blooms are a major issue for the industry as they can cause (at best) fish beingunable to eat or digest so farmers need to stop feeding or (at worst) large scale mortality. Whilst mostfarms monitor the quality of the water, this is still done manually and relatively infrequently. There iscurrently no accurate, automatic and cost effective method of detecting plankton by type and volume.In the summer of 2019, harmful algal bloom caused the death of approximately 8 million farmedsalmon in Norway costing the industry an estimated 4 billion Norwegian Krona (£339 million) inpotential sales and costs (research by Kontali Analyse delivered on behalf of the Norwegian SeafoodResearch Fund).
Predators
Seals and sea lions attacking pens cause not only fish loss but also cause the salmon distress whichresults in the salmon to cease feeding which leads to illness.
Stock Knowledge
Salmon farmers wish to be able to continuously and accurately measure the average weight of a fish.Whilst a number of systems exist to provide total biomass, the Enlarged Group is not aware of anysystem that provides consistent data on the weight of a fish in real time. If average weight data wasavailable in real time this would enable the industry to become more sophisticated in its farmingincluding feeding operations and harvesting in response to market conditions.
6. GROWTH STRATEGY
The Enlarged Group intends to develop both organically and through selective acquisitions.
Expanding Sealfence sales
The Existing OTAQ Group’s strategy is to use its market leading position and reputation to sell moresystems to its existing customers and expand its customer base in existing geographies and newgeographies.
In aquaculture the Existing OTAQ Group is well established in Scotland where there are five majorsalmon farming companies. The Existing OTAQ Group supplies Sealfence to the two largestcompanies in Scotland, covering a total of more than 40% of all existing active salmon farming sitesin Scotland. The other three large salmon farmers in Scotland have an estimated 68 sites in total andthe Existing OTAQ Group is trialling Sealfence at one of these sites.
The Existing OTAQ Group’s strategy is to replicate its success in Scotland in aquaculture in a numberof new territories including:
* Chile is the second-largest salmon farming country globally with an estimated 6,000 salmoncages. The Existing OTAQ Group has had a presence in Chile since 2016 and at 31 December2019 had 168 systems deployed with a number of major farmers including Salmones Antartica;Blumar; Yadran; Aquachile (the world’s second-largest salmon farmer after MOWI) andMultiexport. The Directors expect growth in Chile to follow a similar pattern to Scotland withmajor farmers deploying the systems initially on a singular or a small number of sites to gain
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experience and confidence and then rolling out through their networks. The Existing OTAQGroup is at present in discussions with three large Chilean salmon farming companies aboutmulti-site agreements
* Canada – is a target market and the Existing OTAQ Group is in discussions with a number ofsalmon farming companies operating on the east coast of Canada about a product trial.
* Australia – The Existing OTAQ Group has since 2016 been looking at a strategy to enter theAustralian marketplace. Currently, no acoustic deterrent systems are deployed in Australia asregulatory approvals are required. The Existing OTAQ Group has been in discussions with theregulatory bodies including the Government of Tasmania with an application currently beingdiscussed with the University of Tasmania animal ethics committee to grant Existing OTAQGroup a licence to trial equipment.
* Finland – the Existing OTAQ Group has sold a small number of systems into Finland through adistributor for a number of years and is in discussions with that distributor regarding establishinga rental model
* Norway – is currently by far the largest producer of farmed salmon in the world. At present theregulatory regime in Norway permits the killing of marine mammals (seals and sea lions) toprevent attacks on salmon farms. The killing of marine mammals is not allowed in Chile,Australia and Canada and is highly regulated in the UK and Eire. Unless the regulatory regimein Norway changes, the Enlarged Group does not anticipate Norway becoming a major marketfor Sealfence. However, the US Marine Mammal Protection Act which is due to be implementedin January 2022 could change Norwegian practices if the United States bans the import ofsalmon from commercial fisheries where marine mammals are harmed.
New products
The Existing OTAQ Group continues to develop its Sealfence product and in addition to ongoingupgrades the Existing OTAQ Group is also developing versions of Sealfence that can be used in othersituations such as for salmon trap nets which are widely used in Finland and other Scandinaviancountries and mobile units for other applications.
Plankton Detection
The Existing OTAQ Group also has a number of products in development to address some of themajor issues facing salmon farmers outlined above. These include a Live Plankton Analysis System(“LPAS”) which is an algal bloom early warning detection system. Salmon farmers currently analysewater samples manually once per day. If plankton is detected, the farmers may stop feeding thesalmon or activate bubble curtains to break up the plankton within the cages. LPAS would takecontinuous water samples and analyse them throughout the day. It is proposed that only one LPASsystem would be required per farm which would be located strategically in plankton hotspot areas.The LPAS technology if successfully developed would ultimately seek to establish a cloud-baseddatabase containing information from all LPAS sensors in one area which would eventually provide aprecision / modelling system through the Existing OTAQ Group’s ISAQ cloud-based informationsystem (to be developed pending successful development of LPAS technology).
OTAQ GL has received grants from the Scottish Aquaculture Innovation Centre and CENSIS,Scotland’s innovation centre for sensing, imaging and internet of things technologies, to fund thedevelopment of the LPAS technology through the University of Aberdeen’s Floe CytometryDepartment’s involvement.
The concepts in respect of these products were exhibited at AquaNor (the world’s largest aquaculturetrade show) in August 2019. However, it is not expected that commercial production of the LPAStechnology will be possible for at least two years.
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Biomass
Marine farming demands a real-time, accurate, method of measuring average weight and total in-cagebiomass. At present, there is no system available which fulfils these specific market requirements. Fishfarmers have several issues facing them which can be solved with artificial intelligence and machinevision:
* Fish size / Biomass: it is essential for farmers to understand how big their fish are, sizedistribution and total biomass within each cage;
* Sea Lice detection: salmon farmers have to check and report on sea lice levels daily whichtakes up a large amount of time and effort; and
* Feed pellet detection: there is a desire to automate the detection of feed pellets so that feedingbecomes more automated, precise and less manual.
The Existing OTAQ Group’s proposed biomass system envisages a high resolution stereo camera andAI machine learning. Each of the issues faced by salmon farmers listed above could potentially beaddressed by the biomass technology currently in development.
The biomass system, if successfully developed, would offer accurate measurements in a robust, costeffective package. The system would be deployed permanently in every cage and supplied on a servicemodel. The Existing OTAQ Group have now completed the stereo camera test module and a collectionof imagery from field testing is being compiled. The major obstacle facing the Existing OTAQ Groupis the refinement and training of the artificial intelligence system but two of the major customers haveindicated that they will assist with testing.
The inclusion of a pellet (fish food) counting device is also being considered within the biomasstechnology in development.
Organic growth in offshore oil and gas
Whilst the principal reasons for the acquisitions of the businesses operating in these markets wasstrategic in providing skills, expertise and resources that can be deployed to grow the core aquaculturebusiness, both businesses have established businesses which have opportunities for growth which canbe exploited to generate additional cashflows which would then be available for re-investment in thecore aquaculture business. Over half of the sales of OTAQ Offshore and OTAQ Connectors are intothe North Sea sector. Both businesses have made material sales outside of the North Sea in the past.The Enlarged Group intends to prioritise broadening the geographic spread outside the North Sea.
Acquisitions
In order to realise the vision for the business, the Directors believe that it would be in the interests ofthe Enlarged Group to complement the organic growth prospects referred to above with selectiveacquisitions. Acquisitions will be considered if they meet one or more of the following criteria:
* to enable the Enlarged Group to develop its position in the aquaculture data and services market;
* to allow the Enlarged Group to acquire scale, expertise and/or technology that is being used orcould be used in the aquaculture market; and/or
* to increase the Enlarged Group’s geographical footprint in the markets it has targeted.
To date, the Existing OTAQ Group has made two acquisitions: of OTAQ Offshore and of OTAQConnectors.
* The OTAQ Offshore acquisition allowed the Existing OTAQ Group to acquire technology andengineering expertise which is now being used to develop the new aquaculture productsmentioned above such as LPAS and biomass measurement.
* The OTAQ Connectors acquisition enabled the Existing OTAQ Group to provide a shorter andbetter controlled supply chain and reduced production costs.
7. HISTORY OF THE EXISTING OTAQ GROUP
The Existing OTAQ Group was founded in 2005 as an engineering design business specialising in thedesign of acoustic and electronic products for the offshore oil and gas industry. In 2012 in response toa customer enquiry it developed an acoustic seal deterrent which was delivered in 2012 for evaluationand the first operational unit was installed in 2013. In 2014, Phil Newby joined the Existing OTAQ
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Group as commercial director and in March 2016 was promoted to chief executive. In 2015 theExisting OTAQ Group changed the basis on which it supplied Sealfence from outright sale to long-term rental contracts. The Existing OTAQ Group in 2015 began issuing shares in OTAQ GL to fundthe development of Sealfence and the provision of units under long-term rental agreements. In 2016the Existing OTAQ Group opened an office in Chile.
In November 2018, OTAQ GL acquired OTAQ Offshore (then named Marinesense Limited), acompany based in Aberdeen, that currently designs and supplies a number of products for use underwater to the offshore oil and gas industry, including leak detection and laser measuring devices, whichare supplied on short term rental contracts and IP camera systems which are sold outright or rented.
The consideration for the acquisition of OTAQ Offshore was £500,000 in cash (£250,000 oncompletion and a further £250,000 due on the second anniversary of completion) and the issue of 453OTAQ GL ordinary shares to the selling shareholders of OTAQ Offshore. There is a further cashpayment due five days after the accounts of OTAQ Offshore for the period ending 31 March 2020 arefinalised of 50% of the earnings of OTAQ Offshore before interest and taxes in excess of £450,000 upto a maximum payment of £150,000. There is a further cash payment due on or after 23 November2021 which is £500,000 less the market value of the Third Deferred Consideration Shares at that date.
The consideration shares were issuable in three tranches: 151 on completion; 151 on 23 November2019 and 151 on the third anniversary of completion (23 November 2021). Pursuant to the OTAQOffshore Purchase Agreement Amendment as described at paragraph 12.15 of Part 14 of thisDocument, OTAQ GL has issued, subject to Admission, 151 Ordinary Shares in OTAQ GL (the ThirdDeferred Consideration Shares) in complete satisfaction of the obligation to issue the same number ofshares on 23 November 2021
In April 2019, OTAQ GL acquired OTAQ Connectors Limited (then named Link Subsea Limited), acompany based in Ulverston (38.7 miles from the Existing OTAQ Group’s head office in Lancaster),that designs and manufactures high integrity underwater connectors used in the offshore oil industry.
The consideration for the acquisition of OTAQ Connectors was £400,000 in cash and the issue of 50OTAQ GL ordinary shares to the OTAQ Connectors sellers, payable as to £300,000 in cash oncompletion and further payments of £50,000 due to the OTAQ Connectors sellers on each of 29 April2020 and 29 April 2021. 35 OTAQ GL ordinary shares were issued to the OTAQ Connectors Sellerson completion with 8 additional ordinary shares due to be issued on 29 April 2020 and 7 additionalordinary shares due to be issued on 29 April 2021. Pursuant to the OTAQ Connectors PurchaseAgreement Amendment as described at paragraph 12.16 of Part 14 of this Document, OTAQ GL priorto the date of this document has issued, subject to Admission, 15 Ordinary Shares in OTAQ GL incomplete satisfaction of the obligation to issue the same aggregate number of shares on 29 April 2020and 29 April 2021.
On 7 February 2020 Marinesense Limited changed its name to OTAQ Offshore Limited.
On 6 February 2020 Link Subsea Limited changed its name to OTAQ Connectors Limited.
On 7 February 2020 OTAQ Limited changed its name to OTAQ Aquaculture Limited.
On 10 March 2020 OTAQ GL entered into the Main SPA with Hertsford whereby Hertsford agreed toacquire approximately 86% of the issued share capital of OTAQ GL in exchange for the issue of5,218 Ordinary Shares in the capital of Hertsford for every OTAQ GL Share sold to the Company. Inaddition, the Company will acquire the remaining 14% of the issued share capital of OTAQ GLpursuant to the Drag Along Process, details of which are set out in paragraph 12.12 of part 14 of thisDocument. Completion of the acquisition of the entire share capital of OTAQ GL will take placeimmediately before Admission. The Acquisition Agreement completes at Admission.
In addition, Hertsford has also agreed, following Admission, to acquire any ordinary shares in OTAQGL as a consequence of the exercise of options over 200 OTAQ GL ordinary shares by Phil Newbyand 84 OTAQ GL ordinary shares by Jag Mundi referred to paragraph 16 of Part 7 of this Documentwhich would result in the issue of a further 1,481,912 Ordinary Shares.
8. FINANCIAL INFORMATION
Please refer to Part 9 for Historical Financial Information, Part 10 for Pro-forma Financial Informationand Part 11 for Unaudited Interim Financial Information.
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9. COMPETITION
Aquaculture – the Existing OTAQ Group has a number of competitors, many of whom are betterresourced, that market and/or supply products that are designed to deter marine predators fromattacking salmon farms. However, the Existing OTAQ Group believes, as demonstrated in the Scottishmarket, that the combination of the technology, features, engineering and robustness of the Sealfencesystem enables the Existing OTAQ Group to compete effectively.
Offshore Oil and Gas – there are many competitors producing similar products to those supplied bythe Existing OTAQ Group to the offshore oil and gas industry.
10. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year to31 March
2019
Year to31 March
2018
Year to31 March
2017
£000 £000 £000
Revenue 1,577 919 374
Cost of sales (675) (370) (396)
Gross profit/(loss) 902 549 (22)
Administrative expenses (1,103) (962) (538)
Research and development expenses (142) (106) (82)
Operating Loss (343) (519) (642)
Finance expense (26) (9) (17)
Loss on ordinary activities before taxation (369) (528) (659)
Taxation — 35 2
Loss for the year and total comprehensive loss forthe year (369) (493) (657)
11. RESEARCH AND DEVELOPMENT, PATENTS AND LICENCES
The Existing OTAQ Group does not have any patents in relation to its products. The Existing OTAQGroup’s intellectual property is in its knowledge of the applications to which technology can beapplied and in designing and producing a product that can operate reliably in hostile marineenvironments and under water.
12. MANAGEMENT AND EMPLOYEES
Directors and Senior Management
Harry Hyman (Age 63)
Harry Hyman, a chartered accountant and corporate treasurer, is the founder and managing director ofPrimary Health Properties PLC (“PHP”), a listed company that specialises in the ownership of propertyleased on a long-term basis to healthcare providers. PHP, a UK-REIT is a leader in its niche marketwith gross property assets of £2.4 billion and a consistent record of growth. PHP is advised by NexusTradeco Limited (“Nexus”).
After graduating from Christ’s College Cambridge, Mr Hyman qualified as a chartered accountant withPrice Waterhouse. In 1983, he joined Baltic PLC where he was deputy managing director, financedirector and company secretary. He left to establish PHP and Nexus in February 1994. Mr Hyman is anon-executive director of Biopharma Credit PLC.
Mr Hyman founded HealthInvestor, a business to business journal covering the healthcare sector whichis one of the leading titles in the UK. HealthInvestor recently started an online Asian Edition,HealthInvestor Asia. HealthInvestor runs conferences and events including the annual HealthInvestorawards and the HI Power 50.
Mr Hyman is also founder of The International Opera Awards.
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Mr Hyman will resign as a director on Admission.
Mr Hyman’s current and former directorships and partnerships are set out in paragraph 23.1 of Part 14of this document.
Rodger Sargent (Age 48)
Rodger Sargent has been the founder and finance director of a number of quoted and privatecompanies over the past twenty years. Mr Sargent was a director of Sports Internet Group plc, BigbluBroadband plc, Audioboom Group plc and S4 Capital plc. He previously ran the family office ofBetfair founder, Andrew Black. He qualified as a chartered accountant with PricewaterhouseCoopers,London in 1996.
Rodger Sargent will resign as a director at Admission.
Mr Sargent’s current and former directorships and partnerships are set out in paragraph 23.2 of Part 14of this Document.
Sarah Gills (Age 31)
Sarah Gills is a graduate in Marine Biology and Oceanography from the National OceanographyCentre at the University of Southampton. She is an entrepreneur whose experience includes themanagement of yacht racing around the world, property development and litigation support. She is anactive investor and is currently assisting in the corporate development of AIM-quoted company,Franchise Brands plc.
Sarah Gills will continue as a director following Admission.
Ms Gills’ current and former directorships and partnerships are set out in paragraph 23.3 of Part 14 ofthis Document.
Alexander Hambro (Age 58)
Alex has been engaged in the private equity industry both in the UK and the USA for over 28 yearsduring which time he has acted as a principal investor, manager and sponsor of private equity andventure capital management teams and adviser to high net worth families on their private equityinvestment strategies. Alex managed Hambros PLC’s proprietary venture capital and private equityinvestment portfolio prior to its sale to Societe Generale in 1998.
Alex is a founder director of Crescent Capital, a venture capital fund based in Belfast, and JudgesScientific plc, a scientific instrumentation manufacturing group. In addition to his Chairmanshipresponsibilities at these two companies, Alex is a non-executive Chairman or director of FalanxGroup plc, Izon Science Ltd, Octopus Apollo VCT PLC and Time Partners Ltd.
Alexander Hambro will continue as a director following Admission.
Mr Hambro’s current and former directorships and partnerships are set out in paragraph 23.4 ofPart 14 of this Document.
The Proposed Directors
Philip (“Phil”) Newby, Chief Executive (age 58)
Phil joined the Existing OTAQ Group in June 2014 as commercial director and was appointed chiefexecutive in March 2016.
From 1993 to 1996 Phil was general manager of Unique Systems LLC an offshore equipment rentalbusiness operating in the Middle East and India. From 1996 to 2011 Phil was chief executive ofTrelleborg Offshore Barrow-In-Furness Limited, a business that supplied flowline and cable protectionto the offshore oil and gas industry. In 2011 Phil joined Unique Systems Russia LLC which wasdeveloping umbilical systems for commercial diving operations.
Mr Newby’s current and former directorships and partnerships are set out in paragraph 23.5 of Part 14of this Document.
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Simon Walters, Chief Financial Officer (age 56)
Simon qualified as a chartered accountant in 1986 and joined the corporate finance department of StoyHayward (now BDO). In 1990, he left to join Fuller Peiser, a national property consultancy, asFinance Partner, where he stayed for two years before becoming finance director of the privately-heldMolyneux property group, whose interests included 52 per cent of listed Molyneux Estates plc.
In 1997, Simon became Finance Director at Shani plc, a fully-listed UK clothing manufacturer withoperations in the UK and Eastern Europe. In 1999, Simon became finance director of Wood HallSecurities, a private equity group with funds invested in a range of private high-growth businesses anda significant property portfolio.
Simon has also been a non-executive director of AIM-quoted Bilston & Battersea Enamels plc, financedirector of the Fish! chain of restaurants, a director of NetFM, an internet radio station where heheaded a consortium of backers, and finance director of AIM-quoted AFC Energy plc and NevillePorter plc.
Since 2003, Simon has provided finance director services to a portfolio of listed and unlistedcompanies in various sectors, currently through Headline FD Limited, of which he is a director.
Mr Walters’ current and former directorships and partnerships are set out in Part 23.6 of Part 14 ofthis Document.
George Watt, Independent Non-Executive Director (age 52)
George started his career with KPMG where he qualified as a chartered accountant and worked for10 years in the UK and the United States. He then joined STV Group plc in 1999 where he spent20 years as Chief Financial Officer before retiring from the board in 2019. George is currently non-executive Chairman of Spaceandpeople PLC, an AIM quoted destination media and retail solutionsspecialist operating in the UK and Germany, and has held other non-executive director positions in thetechnology sector.
Mr Watt’s current and former directorships and partnerships are set out in Part 23.7 of Part 14 of thisDocument.
13. CORPORATE GOVERNANCE
Corporate governance
The Directors acknowledge the importance of high standards of corporate governance and intend,given the Company’s size and the constitution of the Board, to comply with the principles set out inthe QCA Code. The QCA Code sets out a standard of minimum best practice for small and mid-sizequoted companies.
Upon Admission, the Board will comprise five Directors, two of whom will be Executive Directorsand three Non-Executive Directors, reflecting a blend of different experiences and backgrounds asdescribed in section 12 of this Part 7.
The QCA Code states that a company should have at least two independent non-executive directors.At Admission the Company will only have two independent non-executive directors being GeorgeWatt and Sarah Gills. The Board believes that the composition of the Board brings a desirable rangeof skills and experience in light of the Company’s challenges and opportunities following Admission,while at the same time ensuring that no individual (or a small group of individuals) can dominate theBoard’s decision making. The Company will appraise the structure of the Board on an ongoing basis.
The Board intends to meet regularly to review, formulate and approve the Enlarged Group’s strategy,budgets, corporate actions and oversee the Enlarged Group’s progress towards its goals. The Companyhas established an Audit Committee, a Remuneration Committee and a Nomination Committee, eachwith formally delegated duties and responsibilities and with written terms of reference.
The Company will review its compliance with the recommendations of the QCA Code and, followingAdmission, report in its annual report and accounts and on its website where it complies and explainwhere it does not comply.
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Audit Committee
The Audit Committee will have the primary responsibility of monitoring the quality of internalcontrols to ensure that the financial performance of the Enlarged Group is properly measured andreported on. It will receive and review reports from the Enlarged Group’s management and externalauditors relating to the interim and annual accounts and the accounting and internal control systems inuse throughout the Enlarged Group. The Audit Committee will meet not less than three times in eachfinancial year and will have unrestricted access to the Enlarged Group’s external auditors. Themembers of the Audit Committee shall include two non-executive Directors. The Audit Committee willcomprise George Watt (as chairman) and Sarah Gills.
Remuneration Committee
The Remuneration Committee will review the performance of the Executive Directors, chairman of theBoard and senior management of the Enlarged Group and make recommendations to the Board onmatters relating to their remuneration and terms of service. The Remuneration Committee will alsomake recommendations to the Board on proposals for the granting of share options and other equityincentives pursuant to any employee share option scheme or equity incentive plans in operation fromtime to time. The Remuneration Committee will meet as and when necessary, but at least twice eachyear. In exercising this role, the Directors shall have regard to the recommendations put forward in theQCA Code and, where appropriate, the QCA Remuneration Committee Guide and associated guidance.The members of the Remuneration Committee shall include two Non-Executive Directors. TheRemuneration Committee will comprise Sarah Gills (as chairman) and George Watt.
Nomination Committee
The Nomination Committee will lead the process for board appointments and make recommendationsto the Board. The Nomination Committee shall evaluate the balance of skills, experience,independence and knowledge on the board and, in the light of this evaluation, prepare a description ofthe role and capabilities required for a particular appointment. The Nomination Committee will meetas and when necessary, but at least twice each year. The Nomination Committee will compriseAlexander Hambro (as chairman), George Watt and Sarah Gills.
14. THE PLACING AGREEMENT AND LOCK-INS
14.1 The Company entered into the Placing Agreement on 10 March 2020 between the Company, theDirectors, the Proposed Directors (Philip Newby, Simon Walters and George Watt) and Jagjit Mundi(the current Chairman of OTAQ)) and Dowgate, pursuant to which, subject to certain conditions,Dowgate agreed to use reasonable endeavours to procure subscribers for the Placing Shares.
14.2 The Placing Agreement contains, among other things, the following provisions:
14.2.1 The Company appointed Dowgate as placing agent to the Placing.
14.2.2 The Company, the Directors, the Proposed Directors and Jagjit Mundi gave certaincustomary representations, warranties and undertakings to Dowgate including, amongothers, warranties in relation to the information contained in this Document and otherdocuments prepared by the Company in connection with the Placing and the Company (asapplicable), in relation to the business of the Company, and their compliance withapplicable laws and regulations. In addition, the Company agreed to indemnify Dowgateagainst certain liabilities, including in respect of the accuracy of information contained inthis Document, losses arising from a breach of the Placing Agreement and certain otherlosses suffered or incurred in connection with the Placing. The liability of the Companyunder the Placing Agreement is unlimited as to time and amount. The liability of theDirectors, the Proposed Directors and Jagjit Mundi under the Placing Agreement is limitedas to time and amount, save that such limitations will not apply (i) in relation to any claimarising fraud or wilful default of the relevant person; or (ii) in respect of the limit as totime, if any claim arises as a result of a breach of the warranties that relate to the offerdocuments.
14.2.3 The Company agreed to pay Dowgate commissions and fees of £292,500 plus VAT andout of pocket expenses including Dowgate’s legal fees.
14.2.4 The Placing Agreement is governed by English Law.
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Lock in arrangements
14.3 Pursuant to the Placing Agreement and the OTAQ Acquisition Agreements, each of the Directors andthe OTAQ Shareholders have agreed to lock in restrictions, the details of which are summarised inparagraphs 12.9 and 12.12 Part 14 of this Document.
15. SHARE DEALING POLICY
The Company has adopted a share dealing policy, in conformity with the requirements of the ListingRules and the Market Abuse Regulation, regulating trading and confidentiality of inside informationfor persons discharging managerial responsibility (“PDMRs”) and persons closely associated with themwhich contains provisions appropriate for a company whose shares are admitted to trading on theOfficial List. The Company intends to take all reasonable steps to ensure compliance by PDMRs andany relevant employees with the terms of its share dealing policy.
16. SHARE OPTIONS
Prior to Admission, options over ordinary shares in OTAQ GL were granted to Jag Mundi, (a directorand Chairman of OTAQ GL up to Admission and Philip Newby (the “Optionholders”), details ofwhich are set out as follows. Each of these options is in respect of Shares in OTAQ GL, however theperformance criteria (if any) for vesting relates to Ordinary Shares in the Company. Please also seebelow for purchase arrangements.
Name of plan
Number ofOTAQ GLshares Date of grant
Exerciseprice perOTAQ GL
share
Dates betweenwhich normally
exercisable
Option Agreement with Jagjit Mundi 50 9 March 2020 £1,050From date of grant
for 10 years
Option Contract with Jagjit Mundi 34 9 March 2020 £0.03125From Admission
for 10 years
Option Contract with Philip Newby 133 9 March 2020 £0.03125See footnote 1
below
OTAQ Share Option Plan Option Contractwith Philip Newby 67 9 March 2020 £0.03125
From the date ofgrant for 10 years
Footnote 1: These options vest and are exercisable as follows:
Number ofShares
Period for Exercise of Option Vesting Conditions
45 From the date of grant for 10 years. None
44 From the vesting date for 10 years (Vesting dateis the date when the Company’s share pricereaches the target (adjacent) (provided this isbefore 31/3/21).
Target price per OrdinaryShare is £0.728 or more.
44 From the vesting date for 10 years (Vesting dateis the date when the Company’s share pricereaches the target (adjacent) (provided this isbefore 31/3/22)
Target price per OrdinaryShare is £1.093 or more.
On Admission, the above mentioned options (the “Options”) will remain to be exercised in respect ofshares in OTAQ GL. Each of Jagjit Mundi and Philip Newby has entered into a contract with theCompany (subject to Admission occurring) which provides that on exercise of any of the Options, theCompany will immediately acquire the OTAQ GL shares issued to the Optionholders in considerationfor the issue of Ordinary Shares in the ratio of 5,218 Ordinary Shares for each option share sold(subject to any appropriate adjustments if the Ordinary Share Capital of the Company is reorganisedfollowing Admission and before completion of transfer of the option shares). Such Ordinary Sharesbeing issued in consideration of the purchase of the option shares, being defined as the OTAQ OptionShares.
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Following Admission, it is proposed that the Company establish a share incentive plan for itsemployees with a view to issuing up to one million Ordinary Shares to such employees. Thatarrangement would require to be approved by the Company’s shareholders.
17. WARRANT EXERCISE
Pursuant to the terms of the Warrant Instrument, the Company granted the following Warrants tovarious persons:
Warrantholder
No. of OrdinaryShares of 3p each
over WarrantsExercise
Price Expiry Date
Harry Hyman 400,000 £0.10 26 November 2021
Rodger Sargent 400,000 £0.10 26 November 2021
Sarah Gills 400,000 £0.10 26 November 2021
Alexander Hambro 400,000 £0.10 26 November 2021
The Warrants were granted subject to the condition (“Exercise Condition”) set out in the WarrantInstrument requiring that the average middle market closing price of the Ordinary Shares needed to beequal to or exceed 20 pence per share for a consecutive period of 30 trading days (as derived fromthe London Stock Exchange Daily Official List) in order for the Warrants to become exercisable.
On Admission the Exercise Condition under the Warrants will be waived and the period for exerciseextended to 3 years from Admission.
As a consequence of the Consolidation, following passing of the Resolutions the position regardingWarrants will be as follows:
Warrantholder
No. of OrdinaryShares of 15p
each overWarrants
ExercisePrice Expiry Date
Harry Hyman 80,000 £0.50 Third anniversary of Admission
Rodger Sargent 80,000 £0.50 Third anniversary of Admission
Sarah Gills 80,000 £0.50 Third anniversary of Admission
Alexander Hambro 80,000 £0.50 Third anniversary of Admission
18. DIVIDEND POLICY
The primary purpose of seeking admission to listing on the London Stock Exchange is to providegrowth capital with which to fund and accelerate the continuing expansion and development of thebusiness. Accordingly, the Directors do not intend that the Company will declare a dividend in thenear term, but instead channel the available cash resources of the Enlarged Group into funding itsexpansion. Thereafter, the Board intends to commence the payment of dividends only when it becomescommercially prudent to do so, having regard to the availability of distributable profits and the fundsrequired to finance continuing future growth.
19. CURRENT TRADING
There has been no significant change in the financial position of the Company since 30 June 2019,being the date of the last audited accounts.
Save as disclosed in this Document, there has been no significant change in the financial position ofthe Existing OTAQ Group since 30 September 2019, being the date to which the Unaudited InterimFinancial Information in Part 11 of this Document has been prepared. Information on trading for theExisting OTAQ Group since the 30 September 2019 is set out in paragraph 2 of Part 8 of thisdocument.
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20. REASONS FOR ADMISSION, USE OF PROCEEDS AND THE PLACING
The Directors believe that Admission will position the Enlarged Group for its next phase ofdevelopment. The Net Placing Proceeds will be used to (i) repay the Shareholder Loans; (ii) fund theplanned investment in fixed assets of approximately £1.5 million over the two years to 31 March2022, primarily on new Sealfence units to be supplied to customers on rental contracts; (iii) fund theestimated £0.75 million spend on the development of new aquaculture products; (iv)pay the costs ofthe Acquisition, the preparation of this Document and the Placing of approximately £1 million; and(v) enable the Company to pursue acquisitions that will expand its geographic reach or the range ofproducts and services that it is able to offer.
The Placing, which is not being underwritten, is conditional, amongst other things, upon the PlacingAgreement becoming unconditional and not having been terminated in accordance with its terms priorto Admission and Admission becoming effective not later than 8 am on 31 March 2020, or such laterdate as Dowgate and the Company may agree, being not later than 9 April 2020. The Placing Sharesand the Consideration Shares will rank pari passu in all respects with the Existing Ordinary Sharesincluding the right to receive all dividends and other distributions declared, paid or made after the dateof issue. None of the Placing Shares have been marketed to or will be made available in whole or inpart to the public in conjunction with the application for Admission. Further details of the PlacingAgreement are set out in paragraph 14 of Part 7 of this Document.
On Admission (but excluding Ordinary Shares to be issued pursuant to the Warrants and the OTAQOption Shares) the Company will have 30,548,599 Ordinary Shares in issue and a marketcapitalisation of approximately £17.6 million (at the Placing Price). Dowgate has agreed, pursuant tothe Placing Agreement and conditional, amongst other things, on Admission, to use its reasonableendeavours to place 2,608,694 new Ordinary Shares with institutional and other investors. The Placingwill raise in total approximately £1.5 million gross of expenses for the Company.
21. ADMISSION, SETTLEMENT AND DEALINGS
Application will be made to the Financial Conduct Authority for all of the Ordinary Shares, issuedand to be issued in connection with the Placing to be admitted to the Official List of the FinancialConduct Authority and to the London Stock Exchange for such Ordinary Shares to be admitted totrading on the London Stock Exchange’s Main Market for listed securities. It is expected thatAdmission will become effective and that dealings in the Shares will commence on 31 March 2020.
The Ordinary Shares will be in registered form. The Articles permit the Company to issue OrdinaryShares in either certificated or uncertificated form in accordance with the CREST Regulations. CRESTis a computerised share transfer and settlement system. The system allows shares and other securitiesto be held in electronic form rather than paper form, although a Shareholder can elect to receive andretain a share certificate. Share certificates, where applicable, will be sent to the registered Shareholderby the Registrar, at the Shareholder’s own risk.
22. TAXATION
Your attention is drawn to the taxation section contained in Part 12 of this Document. If you are inany doubt as to your tax position, you should consult your own independent financial adviserimmediately.
23. THE TAKEOVER CODE AND THE CONCERT PARTY
The Company is a public company incorporated in England and Wales, and application will be madeto the London Stock Exchange for the Enlarged Share Capital to be admitted to trading on the OfficialList of the London Stock Exchange. The Takeover Code applies, amongst others, to all companieswho have their registered office in the UK, Channel Islands or Isle of Man and whose securities aretraded on a regulated market in the UK or a multilateral trading facility (such as the London StockExchange) or a stock exchange in the Channel Islands or Isle of Man. Accordingly, the Company issubject to the Takeover Code and therefore all Shareholders are entitled to the protections afforded byit. The Takeover Code operates principally to ensure that shareholders of the Company are treatedfairly and are not denied an opportunity to decide on the merits of a takeover and that shareholders ofthe same class are afforded equivalent treatment. The Takeover Code provides an orderly frameworkwithin which takeovers are conducted and the Panel on Takeovers and Mergers has now been placedon a statutory footing. Further information on the provisions of the Takeover Code is set out inparagraph 11 of Part 14 of this document. The Takeover Code governs, amongst other things,
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transactions which may result in a change of control of a company to which the Takeover Codeapplies. Under Rule 9 of the Takeover Code, any person who acquires, whether by a series oftransactions over a period of time or not, an interest in shares (as defined in the Takeover Code)which (taken together with shares in which that person is already interested or in which persons actingwith him are interested) carry 30 per cent or more of the voting rights of a company which is subjectto the Takeover Code, is normally required to make a general offer to all the remaining shareholdersto acquire their shares.
Similarly, Rule 9 of the Takeover Code also provides that when any person, together with personsacting in concert with him, is interested in shares which, in aggregate, carry 30 per cent or more ofthe voting rights of such company but does not hold shares carrying more than 50 per cent of suchvoting rights, a general offer will normally be required if any further interest in shares is acquiredwhich increases the percentage of shares carrying voting rights in which he, together with personsacting in concert with him, are interested.
Where any person who, together with persons acting in concert with him, holds over 50 per cent ofthe voting rights of a company, acquires any further shares carrying voting rights, they will notgenerally be required to make a general offer to the other shareholders to acquire the balance of theirshares, though Rule 9 of the Takeover Code would remain applicable to individual members of aconcert party who would not be able to increase their percentage interests in the voting rights of suchcompany through or between Rule 9 thresholds without complying with the requirements of Rule 9 orthe consent of the Takeover Panel. An offer under Rule 9 must be in cash and must be at the highestprice paid by the person required to make the offer, or any person acting in concert with him, for anyinterest in shares of the company in question during the 12 months prior to the announcement of theoffer.
The Company has agreed with the Panel that the members of the Concert Party are considered to beacting in concert for the purposes of the Takeover Code. Persons acting in concert include personswho, pursuant to an agreement or understanding (whether formal or informal), co-operate, to obtain orconsolidate control of that company. The Concert Party, on Admission, (including Ordinary Shares tobe issued pursuant to the Warrants and the OTAQ Option Shares) will together hold Ordinary Sharesrepresenting an aggregate of 33.58 per cent of the Enlarged Share Capital as increased by theOrdinary Shares issuable on exercise of the OTAQ Option Shares and the Warrants. Further details ofthe Concert Party’s holding are set out in paragraph 19 of Part 14 of this Document. As the ConcertParty will, between its members, hold Ordinary Shares carrying 30 per cent or more of the Company’svoting share capital but less than 50 per cent of the Company’s voting share capital, for so long asthey remain in concert, any further increase in that interest in Ordinary Shares will be subject to theprovisions of Rule 9 of the Takeover Code.
24. FURTHER INFORMATION
You should read the whole of this Document, which provides additional information on the EnlargedGroup and the Placing, and not just rely on the information contained in this Part 7. In particular,your attention is drawn to the risk factors in Part 2 of this Document and the Additional Informationcontained in Part 14 of this Document.
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PART 8
OPERATIONAL AND FINANCIAL REVIEW
1. OVERVIEW
1.1 The Existing OTAQ Group supplies its products and services into two distinct markets:
(a) aquaculture and in particular salmon farms; and
(b) offshore oil and gas.
Details of these are as follows:
Aquaculture
The Existing OTAQ Group is a supplier to the salmon farming sector of the aquaculture market,offering a technology-based product (Sealfence) that reduces losses of stocks through attacks on farmsby predators, usually seals or sea lions. Most of its customer base prefer to rent Sealfence on fixedprice four-year contracts (in Chile the customer places purchase orders for rental contract terms of 12to 18 months), and the Company does not envisage a significant change to this business model.However as rental contracts come to an end, unless they are renewed, the Company could suffer areduction in revenue.
The growth of the aquaculture business has been through the development and supply to newcustomers of a small number of systems on a trial basis, leading to increasing orders for systemsinstalled on a rental contract basis. The Existing OTAQ Group’s aquaculture business has developedfrom a technology development company with revenues predominantly from selling technical servicesin the UK to today’s model of a business that develops and installs Sealfence on rental contractssystems in both the UK and Chile and sells its products in Finland and Russia. There is growinginterest in Sealfence in other important aquaculture markets including Canada and Australia.
Offshore Oil and Gas
The Existing OTAQ Group supplies through OTAQ Offshore a range of sub-sea cameras, lasermeasuring devices, leak detection systems and, through OTAQ Connectors, high integrity electricalconnectors for use in the offshore oil & gas market. Most of the Existing OTAQ Group’s sales to theOffshore Oil and Gas industry are to businesses in the North Sea.
The Historical Financial Information for the Existing OTAQ Group as set out in Section B of Part 9of this Document incorporates the results of OTAQ Offshore from 23 November 2018 to 31 March2019.
The Unaudited Interim Financial information for the Existing OTAQ Group as set out in Section B ofPart 11 of this Document incorporates the results of OTAQ Connectors from 29 April 2019 to30 September 2019.
2. CURRENT TRADING & PROSPECTS
The Unaudited Interim Financial Information of the Existing OTAQ Group for the six months endedto 30 September 2019 set out in Section B of Part 11 of this Document shows total revenues of£1.757 million (including £0.704 million revenues from OTAQ Offshore and OTAQ Connectors),EBITDA of £0.315 million, an operating loss of £0.046 million and a loss before taxation of£0.143 million. The operating loss for the six months to 30 September 2019 is stated after charging£0.051 million amortisation of acquired intangible fixed assets. The order book for Sealfence at30 September 2019 was 1,126 units. The interim period included the effect of the acquisition ofOTAQ Connectors in line with the Enlarged Group strategy.
Despite the political unrest in Chile the Existing Oban Group continues to make good progress andlevels of interest in Sealfence remain high.
The unaudited consolidated management accounts of the Existing OTAQ Group for the three monthsended 31 December 2019 show revenues of £0.802 million of which £0.321 million was fromacquisitions. EBITDA for the three months ended 31 December 2019 was £0.087 million and theoperating loss before the amortisation of acquired intangible fixed assets was £0.092 million.
An analysis of the financial history of the Existing OTAQ Group including the interim period to30 September 2019, is set out in this Part 8.
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3. DEVELOPMENT AND PERFORMANCE OF THE BUSINESS
3.1 Revenues
The financial performance of the aquaculture business has two key drivers: the number of unitsinstalled on rental contracts with clients, and the operating expenses of the Enlarged Group needed toservice these contracts including commercial activities and continuing product development.
Revenues on contracts are recognised over the life of the contract, commencing when a system isinstalled and operational. Certain contracts allow the customer to suspend the contract for a limitedperiod for operational reasons, for example when fish are harvested. In this event, revenue is notrecognised until the contract resumes. Some contracts include a non-refundable deposit payable by thecustomer; any deposits are not recognised as revenue until the end of the contract.
The table below outlines the growth of the number of Sealfence units installed on rental from just 12units at 1 April 2016 to 1,126 units at 30 September 2019 and the revenues generated by those units.
Revenues £’000 excluding theeffect of acquisitions
* Total revenues include ancillary charges such as repairs due to customer fault and decommissioning and re-installation at thecustomer’s request for operational reasons.
The revenue figures above exclude the acquisition of OTAQ Offshore (previously named Marinesense)in November 2018 and OTAQ Connectors (formerly named Link Subsea) in April 2019. Theseacquisitions added £0.14 million to revenues during the year to 31 March 2019 and £0.70 million inthe six months to 30 September 2019 (nil in the six months to 30 September 2018). Both acquiredcompanies are profitable and have a successful track record in their markets.
3.2 Costs of Sales
Costs included in costs of sales include materials consumed in servicing contracts, operational labourand overheads including travel to customer sites, and depreciation of systems installed and accountedfor as fixed assets. The table below shows the evolution of costs of sales, excluding the effect ofacquisitions:
Costs of Sales £’000 excludingthe effect of acquisitions
Year ended31 March
2017
Year ended31 March
2018
Year ended31 March
2019
6 Months toSeptember
2019
Materials £198 £54 £114 £167
Labour & Overheads £138 £122 £181 £31
Depreciation £60 £194 £300 £228
Other costs £Nil £Nil £59 £39
Total £396 £370 £654 £465
Gross (Loss)/Profit £(22) £549 £781 £588
Margin % (5.9%) 59.7% 54.4% 55.8%
Material costs include costs of repairs, some of which are chargeable to customers, any charge beingincluded in revenues. The year to 31 March 2017 included costs of repairing and replacing an earlierdesign of system that had failed in the field, a design issue now resolved.
Other costs include commissions on revenues received by OTAQ Chile on systems funded locally, anarrangement that has now ceased.
Costs classified as costs of sales of the acquired companies, excluded above, were £0.02 million in theyear to 31 March 2019 and £0.28 million in the six months to 30 September 2019 (nil to30 September 2018).
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3.3 Operating Expenses
The growth in both the number of systems deployed and the geographic spread, the development ofthe technology in use by the Existing OTAQ Group, and the integration and management ofacquisitions has necessitated an increasing cost base to manage a growing business. Operatingexpenses, which include commercial and product development costs but exclude costs added byacquisitions, are as set out below.
Operating expenses £’000excluding the effect ofacquisitions
Year ended31 March
2017
Year ended31 March
2018
Year ended31 March
2019
6 Months toSeptember
2019
Payroll including director fees £388 £584 £567 £394
Travel costs £42 £152 £199 £122
Professional fees includingaudit & legal £77 £113 £168 £118
Office rental and associatedcosts £50 £55 £88 £59
Depreciation and amortisation £29 £54 £77 £117
Other £34 £110 £51 £(17)
Total £620 £1,068 £1,150 £793
The operating expenses of the acquired businesses in the year to 31 March 2019 and the 6 months to30 September 2019 were £0.1 million and £0.26 million respectively. These figures are not included inthe table above.
The six months to 30 September 2019 includes in operating expenses an amortisation charge of£0.05 million for the fair value of trademarks acquired in 2019 (year to 31 March 2019 nil).
3.4 Operating Result
Losses on ordinary activities before taxation have reduced from £0.66 million in the 12 months to31 March 2017 to £0.37 million for the 12 months to 31 March 2019. The loss before taxation forthe interim period to 30 September 2019 was £0.14 million (2018 £0.25 million) after a notionalinterest charge relating to the deferred costs of the acquisitions.
The nature of the aquaculture business is to procure and rent systems which are treated as fixed assetsby the Existing OTAQ Group and depreciated over four years; costs therefore include an increasingcharge for depreciation. EBITDA is therefore regarded as a key performance indicator by the ExistingOTAQ Group. In the 12 months to 31 March 2017, EBITDA for the Existing OTAQ Group was aloss of £0.55 million; in the year to 31 March 2019 the EBITDA was a profit of £0.05 million. In theinterim six-month period to 30 September 2019 the EBITDA was a profit of £0.31 million(September 2018 a loss of £0.08 million).
4. FINANCE COSTS
Finance income relates to interest earned on cash held at the bank and finance costs relate to interestcharged on loans from shareholders.
5. INCOME TAX
Income tax includes both current and deferred tax expenses and income. The effective tax rate used tocalculate the actual tax charge for the period differs from the applicable tax rate due to carried forwardtax losses and to differences between accelerated tax allowances and amortisation and depreciationcharged to the accounts of the Existing OTAQ Group. Deferred tax expenses or income relates to therecognition and derecognition of deferred tax assets and liabilities. These include temporarydifferences, measured at the amount expected to be payable or recoverable, between the carryingamounts of assets and liabilities and their tax bases, as well as unused tax losses and tax credits.These amounts are measured by applying to the corresponding temporary difference, the tax rate atwhich the asset is expected to be realised or the liability is expected to be settled.
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6. RECOGNITION OF ASSETS
The Existing OTAQ Group has recorded an increase in net fixed assets in the consolidated balancesheet as a result of the investment in systems. As at 31 March 2017 net tangible fixed assets recordedwere £0.28 million; this had increased to net tangible fixed assets of £1.67 million at 30 September2019.
The Existing OTAQ Group invests in development of its technology and, where appropriate, costs arecapitalised as intangible assets and amortised. The Existing OTAQ Group has also acquired rights tothe intellectual property used in its systems which has been capitalised as an intangible asset and issubject to amortisation. In relation to acquisitions, an assessment of the fair value of assets acquired,including intangibles such as trade names, is assessed and a goodwill calculation made and theresulting goodwill added to the balance sheet as an intangible. The fair values of assets aredepreciated or amortised whilst the goodwill is subject to impairment reviews.
7. LIQUIDITY AND CAPITAL RESOURCES
The funding of investment in rental assets, the consideration for acquisitions and losses before tax hasbeen primarily through the issue of new ordinary shares in OTAQ GL. The issues of new ordinaryshares in OTAQ GL for cash in the period from 16 January 2017 to the date of this document wereas follows:
DateNo ofshares
Price pershare £
16 January 2017 755 1,000
12 September 2017 251 1,050
13 September 2017 68 1,050
31 October 2017 32 1,250
15 February 2018 254 1,150
23 March 2018 215 1,150
22 & 29 May 2018 30 1,150
19 – 24 July 2018 800 1,650
1 April 2019 550 1,900
TOTAL 2,955
The total aggregate amount raised by OTAQ GL was £3,904,000 (net of expenses).
In addition to the shares listed above, shares were issued to the former owners of the acquiredbusinesses and holders of minority stakes (in the case of OTAQ Chile) as a cost of the acquisitions:
OTAQ Aquaculture
Date of consideration
OTAQGL Shares
issued
31 October 2017 32
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OTAQ Offshore
Date of consideration
OTAQGL Shares
issued
23 November 2018 151
23 November 2019 151
9 March 2020 (subject to Admission) 151
OTAQ Connectors
Date of consideration
OTAQGL Shares
issued
29 April 2019 35
9 March 2020 (subject to Admission) 15
OTAQ Chile
Date of consideration
OTAQGL Shares
issued
9 March 2020 (subject to Admission) 15
In May 2019, 15 shares in OTAQ GL were issued to Jagjit Mundi on conversion of a shareholderloan in the sum of £25,000 (twenty five thousand pounds) made by Jagjit Mundi to OTAQ GL on23 January 2018 (the “JM Loan”).
OTAQ GL has been partly funded by 12 shareholder loans made between March 2018 and May 2019(including the JM Loan). Save for the JM Loan, these remain outstanding; the table below sets out theoriginal amount loaned excluding interest, and these are as follows (the “Shareholder Loans”):
Name of Lender
Amount ofShareholder
Loan
3B Capital Limited £75,000
Alice Poutney £5,000
3B Capital Limited £50,000
Charles Peel £100,000
Nexus Central Management Services Limited £50,000
Diane Newby £10,000
David Poutney £75,000
James Serjeant £20,000
Enhansis Ltd £25,000
Kirsten Gaymer £35,000
D.J. Horrocks £15,000
Total £460,000
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The total amount (inclusive of interest payable) outstanding on the Shareholder Loans at 31 January2020 was £0.526 million comprising a total principal sum as set out above of £460,000 plus accruedinterest of £0.066 million. Immediately following Admission, the Shareholder Loans (together withadditional accrued interest up to the date of Admission will be repaid in full using the Net PlacingProceeds.
The evolution of the cash flows of OTAQ GL are set out below. The cash inflows and outflowsinclude the effect of raising funds and costs of the recent acquisitions.
Cash Flows £’000 post theeffect of acquisitions
Year ended31 March
2017
Year ended31 March
2018
Year ended31 March
2019
6 Months to30 September
2019
Cash flows from operatingactivities (224) (318) 414 370
Cash flows from investingactivities (283) (551) (1,645) (864)
Cash flows from financingactivities 591 1,076 1,298 1,278
Net movement in cash andcash equivalents 84 207 67 784
Cash and cash equivalents atthe end of the period 94 301 368 1,152
Cash flows from operations are the losses or profits excluding the effect of depreciation andamortisation, adjusted for changes in working capital.
Investing activities include the investment in systems that are procured and installed under contractand in the development of technology capitalised as intangibles. The year to 31 March 2019 includeda net outflow of £229,000 for the acquisition of OTAQ Offshore, and the interim period to30 September 2019 included a net outflow of £289,000 for the acquisition of OTAQ Connectors.
Financing activities include proceeds from issues of share capital and loans raised, net of expenses,and interest income and charges.
In the three months to 31 December 2019 the Existing OTAQ Group had an operating cash outflow of£0.337 million and net capex of £0.009 million. Included in the operating cash outflow was anamount of £0.32 million which was the increase in Sealfence units that are held in stock pendinginstallation with customers and being reclassified as fixed assets. Neither the Company nor any othermember of the Enlarged Group has any bank overdraft.
8. TREND INFORMATION
Save for the changes of name of Marinesense Limited (to OTAQ Offshore Limited), Link SubseaLimited (to OTAQ Connectors Limited) and OTAQ Limited (to OTAQ Aquaculture Limited, nosignificant events have taken place since 30 September 2019. Events between the Historical FinancialInformation of 31 March 2019 and the Unaudited Interim Financial Information of the 30 September2019 are fully recorded in that statement.
Save as set out in this Part 8, there has been no significant change in the markets in which theEnlarged Group operates since 30 September 2019.
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PART 9
HISTORICAL FINANCIAL INFORMATION
SECTION A – ACCOUNTANT’S REPORT ON THE HISTORICAL FINANCIALINFORMATION OF THE EXISTING OTAQ GROUP
The following is the full text of a report on the Existing OTAQ Group from RSM Corporate Finance LLP,the Reporting Accountants, to the Directors of the Company.
The DirectorsHertsford Capital plcc/o Fladgate LLP16 Great Queen StreetLondonWC2B 5DG
24 March 2020
Dear Sirs,
OTAQ Group Limited and its subsidiary undertakings (the “Existing OTAQ Group”)
We report on the historical financial information of the Existing OTAQ Group set out in Section B of Part 9of the prospectus dated 24 March 2020 (“Prospectus”) of Hertsford Capital plc (the “Company”). Thishistorical financial information has been prepared for inclusion in the Prospectus on the basis of theaccounting policies set out at Note 3 to the historical financial information. In this letter, “ProspectusRegulation Rules” means the rules known as such as issued by the FCA under Part VI of FSMA and asamended, consolidated, re-enacted, or replaced from time to time implementing and incorporating inter aliathe Prospectus Regulation (Regulation (EU) 2017/1129 of the European Parliament) and the ProspectusSupplementary Regulation (Commission Delegated Regulation (EU) 2019/980). This report is required byRule 18 of Annex 1 of the Prospectus Regulation Rules and is given for the purpose of complying withthat paragraph and for no other purpose.
Responsibilities
The directors of the Company (the “Directors”) are responsible for preparing the historical financialinformation in accordance with International Financial Reporting Standards as adopted by the EuropeanUnion.
It is our responsibility to form an opinion on the historical financial information and to report our opinionto you.
Save for any responsibility arising under Prospectus Regulation Rule 5.3.2R(2)(f) to any person as and tothe extent there provided, to the fullest extent permitted by law, we do not accept or assume responsibilityand will not accept any liability to any other person for any loss suffered by any such other person as aresult of, arising out of, or in connection with this report or our statement, required by and given solely forthe purposes of complying with Rule 1.3 of Annex 1 of the Prospectus Regulation Rules, or consenting toits inclusion in the Prospectus.
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Basis of opinion
We conducted our work in accordance with Standards for Investment Reporting issued by the FinancialReporting Council in the United Kingdom. Our work included an assessment of evidence relevant to theamounts and disclosures in the historical financial information. It also included an assessment of significantestimates and judgments made by those responsible for the preparation of the historical financial informationand whether the accounting policies are appropriate to the entity’s circumstances, consistently applied andadequately disclosed.
We planned and performed our work so as to obtain all the information and explanations we considerednecessary in order to provide us with sufficient evidence to give reasonable assurance that the historicalfinancial information is free from material misstatement whether caused by fraud or other irregularity orerror.
Opinion
In our opinion, the historical financial information gives, for the purposes of the Prospectus, a true and fairview of the state of affairs of the Existing OTAQ Group as at the dates stated and of its results, cash flowsand changes in equity for the periods then ended in accordance with International Financial ReportingStandards as adopted by the European Union.
Declaration
For the purposes of Prospectus Regulation Rule 5.3.2R(2)(f) we are responsible for this report as part of theProspectus and declare that, to the best of our knowledge, the information contained in this report is inaccordance with the facts and that this report makes no omission likely to affect its import. This declarationis included in the Prospectus in compliance with Rule 1.2 of Annex 1 of the Prospectus RegulationRules and Rule 1.2 of Annex 11 of the Prospectus Regulation Rules.
Yours faithfully
RSM Corporate Finance LLP
Regulated by the Institute of Chartered Accountants in England and Wales
RSM Corporate Finance LLP is a limited liability partnership registered in England and Wales, registered no. OC325347.A list of the names of members is open to inspection at the registered office 25 Farringdon Street London EC4A 4AB
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SECTION B: HISTORICAL FINANCIAL INFORMATION OF THE EXISTINGOTAQ GROUP FOR THE THREE YEARS ENDED 31 MARCH 2019
EXISTING OTAQ GROUP
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Notes
Year to31 March
2019£000
Year to31 March
2018£000
Year to31 March
2017£000
Revenue 4 1,577 919 374Cost of sales (675) (370) (396)
Loss on ordinary activities before taxation (369) (528) (659)Taxation 8 — 35 2
Loss for the year and total comprehensive loss forthe year (369) (493) (657)
Attributable to:The owners of the company (365) (487) (601)Non-controlling interests (4) (6) (56)
(369) (493) (657)
The losses for the three years ended 31 March 2019 arise from the group’s continuing operations.
There were no other items of comprehensive income for the three years ended 31 March 2019 and thereforethe loss for each year is also the total comprehensive loss for each year.
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EXISTING OTAQ GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
IssuedEquitycapital
SharePremium
OtherReserve
RevenueReserve
Net Equityfor OTAQ
Shareholders
Non-Controlling
interests Total Equity£000 £000 £000 £000 £000 £000 £000
At 1 April 2016 — 400 — (130) 270 (62) 208Loss for the year and totalcomprehensive loss for theyear — — — (601) (601) (56) (657)Issue of share capital 755 — — 755 — 755
At 31 March 2017 — 1,155 — (731) 424 (118) 306Loss for the year and totalcomprehensive loss for theyear — — — (487) (487) (6) (493)Issue of share capital — 871 — — 871 — 871Expenses of share issues — (36) — — (36) — (36)Reclassification — — (122) — (122) 122 —
At 31 March 2018 — 1,990 (122) (1,218) 650 (2) 648Loss for the year and totalcomprehensive loss for theyear — — — (365) (365) (4) (369)Deferred cost of acquisition ofOTAQ Offshore — — 477 — 477 — 477Issue of share capital — 1,604 — — 1,604 — 1,604Expenses of share issues — (63) — — (63) — (63)
At 31 March 2019 — 3,531 355 (1,583) 2,303 (6) 2,297
Capital and reservesIssued equity capital 20 — — —Share premium 20 3,531 1,990 1,155Other reserve 21 355 (122) —Non-controlling interests 21 (6) (2) (118)Revenue reserve 22 (1,583) (1,218) (731)
Total Equity 2,297 648 306
OTAQ GL shareholders’ equity 2,303 650 424
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EXISTING OTAQ GROUP
CONSOLIDATED CASH FLOW STATEMENT
Year to31 March
2019
Year to31 March
2018
Year to31 March
2017Notes £000 £000 £000
Cash flows from operating activitiesLoss after interest and tax (369) (493) (657)Adjustments for:Depreciation of tangible fixed assets 337 119 66Amortisation of intangible assets 56 39 23Loss on disposal of fixed assets 7 6 9Interest Payable 26 9 —Taxation Charge — (35) (2)Changes in working capital:(Increase)/decrease in inventories (47) (219) 99(Increase) in trade and other receivables — (212) (3)Increase in trade payables and otherpayables excluding deferred revenue 304 525 186(Decrease)/increase in deferred revenue 100 (57) 57
Net cash inflow (outflow) from operating activities 414 (318) (224)
Cash flows from investing activitiesPurchases of tangible fixed assets 9 (1,185) (520) (283)Purchases of intangible fixed assets 10 (231) (63) —Net cash on acquisition of OTAQ Offshore 12 (229) — —Proceeds from the sale of plant and equipment — 32 —
Net cash outflow from investing activities (1,645) (551) (283)
Cash flows from financing activitiesProceeds from issues of ordinary share capital 20 1,355 871 755Expenses of share issues 20 (63) (36) —Proceeds from shareholder loan advances 51 260 —Repayment of shareholder loans — — (205)Development loan (advance) — — 50Development loan (repayment) (15) (17) (9)Hire purchase advance (repayment) (4) 7 —Interest paid on borrowings (26) (9) —
Net cash inflow from financing activities 1,298 1,076 591
Increase in cash and cash equivalents 67 207 84Cash and cash equivalents at the start of the year 301 94 10
Cash and cash equivalents at the end of the year 368 301 94
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EXISTING OTAQ GROUP
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
1. Reporting entity
OTAQ GL is a private company limited by shares, incorporated and domiciled in England. Theaddress of its registered office is 8-3-4 Harpers Mill, South Road, White Cross, Lancaster, LA1 4XF.
The historical financial information presents the financial track record of OTAQ GL and itssubsidiaries (together referred to as the “Existing OTAQ Group”) for the years ended 31 March 2019,31 March 2018 and 31 March 2017.
The principal activity of the Existing OTAQ Group is the development, provision and support ofmarine technology for use in the aquaculture and offshore oil and gas industries.
The significant accounting policies adopted by the Existing OTAQ Group are set out in note 3.
2. Basis of preparation
(a) Statement of compliance
This Historical financial information has been prepared in accordance with International FinancialReporting Standards and interpretation issued by the International Financial ReportingInterpretations Committee (“IFRIC”) as adopted by the European Union (IFRS).
(b) Basis of measurement
The historical financial information is prepared on the historical cost basis.
The methods used to measure fair values of assets and liabilities are discussed in the respectivenotes in note 3 below.
(c) Going concern
At 31 March 2019, the Existing OTAQ Group had net assets of approximately £2.3 million andcash of approximately £368,000. These amounts improved to approximately £3.3 million and£1.1 million as at 30 September 2019, the date of the unaudited interims contained in Part 11.The Directors have reviewed the Enlarged Group’s projected cash flows for a period of at leasttwelve months from the date of this document which demonstrates that, dependent on successfulcompletion of the Acquisition, the Placing and the Re-admission, the Enlarged Group can meetits liabilities as they fall due. As such this consolidated historical financial information has beenprepared on a going concern basis.
(d) Functional and presentational currency
The historical financial information is presented in pounds sterling, which is the Existing OTAQGroup’s functional currency. All financial information presented has been rounded to the nearestthousand.
(e) Use of estimates and judgements
The preparation of historical financial information requires management to make estimates andjudgements that affect the amounts reported for assets and liabilities as at the reporting date andthe amounts reported for revenues and expenses during the year. The nature of estimation meansthat actual amounts could differ from those estimates. Estimates and judgements used in thepreparation of the historical financial information are continually reviewed and revised asnecessary. While every effort is made to ensure that such estimates and judgements arereasonable, by their nature they are uncertain and, as such, changes in estimates and judgementsmay have a material impact on the historical financial information.
The key sources of judgement and estimation uncertainty that have a significant risk of causingmaterial adjustment to the carrying amount of assets and liabilities within the next financial yearare discussed below.
(i) Taxation
Management judgement is required to determine the amount of tax assets that can berecognised, based upon the likely timing and level of future taxable profits together withan assessment of the effect of future tax planning strategies. The carrying value of the
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unrecognised deferred tax asset for tax losses and other timing differences at 31 March2019 was £309,000 (2018: £214,000, 2017: £223,000). The value of the deferred taxliability not recognised at the year-end is £101,000 (2018: £49,000, 2017: £31,000).Further information is included in note 8.
(ii) Revenue recognition
Judgements are required as to whether and when contractual obligations have beenfulfilled and in turn the period over which systems rental revenue should berecognised. Further information is included in note 3.
(iii) Development costs
Management judgement is required to determine the appropriate amount and timingof recognition as an asset development costs incurred on projects to improve anddevelop products for sale and rental by the group, based upon the likely timing andlevel of future revenues. The value of the development costs capitalised at 31 March2019 was £329,000 (2018: £118,000, 2017: £120,000).
3. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented.
(a) Basis of consolidation
This historical financial information consolidates the historical financial information of OTAQ GLand the entities it controls (its subsidiaries) drawn up to 31 March each year.
All business combinations are accounted for by applying the acquisition method as at theacquisition date, which is the date on which control is transferred to the Group.
The Group measures goodwill at the acquisition date as:
* the fair value of the consideration transferred; plus
* the recognised amount of any non-controlling interests in the acquiree; plus
* the fair value of the existing equity interest in the acquiree; less
* the net recognised amount (generally fair value) of the identifiable assets acquired andliabilities assumed.
Transaction costs related to the acquisition, other than those associated with the issue of debt orequity securities, that the Existing OTAQ Group incurs in connection with a businesscombination are expensed as incurred.
All subsidiaries are entities over which OTAQ GL has the power to govern the financial andoperating policies. The percentage holdings of OTAQ GL in its subsidiaries is set out in note 11.The subsidiaries have been fully consolidated from the date control passed.
All intra-group transactions, balances and unrealised gains on transactions between ExistingOTAQ Group companies are eliminated on consolidation. The accounting policies of subsidiariesare amended where necessary to ensure consistency with the policies adopted by the ExistingOTAQ Group.
(b) Foreign currency transactions
Transactions in foreign currencies are initially recorded in the functional currency by applyingthe spot rate ruling at the date of the transaction. Monetary assets and liabilities denominated inforeign currencies are retranslated at the functional currency rate of exchange ruling at thereporting date. All differences are taken to the consolidated statement of comprehensive income.
(c) Segmental reporting
An operating segment is a component of an entity that engages in business activities from whichit may earn revenues and incur expenses, the operating results for which are regularly reviewedby the entity’s chief operating decision maker to make decisions about resources to be allocatedto the segment and assess its performance, and for which discrete financial information isavailable. Segmental information is set out in note 4.
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(d) Revenue recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to theExisting OTAQ Group and the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received or receivable for the sale ofgoods or services, excluding discounts, rebates, VAT and other sales taxes or duties.
Revenue under service contracts is recognised on a straight-line basis over the period of thecontract. Deposits received in advance are deferred and recognised at the end of the contractwhen applicable.
(e) Government grants
Government grants are recognised when it is reasonable to expect that the grants will bereceived and that all related conditions are met, usually on submission of a valid claim forpayment.
Government grants of a revenue nature are deducted from administrative expenses in theconsolidated statement of comprehensive income in line with the terms of the underlying grantagreement.
Government grants relating to capital expenditure are deducted in arriving at the carrying amountof the asset.
(f) Lease payments
Rentals payable under operating leases, which are leases where the lessor retains a significantproportion of the risks and rewards of the underlying asset, are charged in the consolidatedstatement of comprehensive income on a straight-line basis over the expected lease term.
Lease incentives received are recognised as an integral part of the total lease expense, over theterm of the lease.
(g) Finance expense
Finance expense comprises interest expense on borrowings. All borrowing costs are recognisedusing the effective interest method.
(h) Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in theconsolidated statement of comprehensive income except to the extent that it relates to itemsrecognised directly in equity or in other comprehensive income.
Current income tax assets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to, the tax authorities. The tax rates and tax lawsused to compute the amount are those that are enacted or substantively enacted by the reportingdate.
Deferred income tax is recognised on all temporary differences arising between the tax bases ofassets and liabilities and their carrying amounts in the historical financial information with thefollowing exceptions:
* where the temporary difference arises from the initial recognition of goodwill or of an assetor liability in a transaction that is not a business combination, that at the time of thetransaction affects neither accounting nor taxable profit nor loss; and
* in respect of taxable temporary differences associated with investments in subsidiarieswhere the timing of the reversal of the temporary differences can be controlled and it isprobable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are measured on an undiscounted basis using the taxrates and tax laws that have been enacted or substantially enacted by the date and which areexpected to apply when the related deferred tax asset is realised, or the deferred tax liability issettled.
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Deferred income tax assets are recognised to the extent that it is probable that future taxableprofits will be available against which differences can be utilised. An asset is not recognised tothe extent that the transfer or economic benefits in the future is uncertain.
(i) Property, plant and equipment
Property, plant and equipment assets are recognised initially at cost. After initial recognition,these assets are carried at cost less any accumulated depreciation and any accumulatedimpairment losses. Cost comprises both the aggregate amount paid and the fair value of anyother consideration given to acquire the asset, and includes costs directly attributable to makingthe asset capable of operating as intended.
Depreciation is computed by allocating the depreciable amount of an asset on a systematic basisover its useful life and is applied separately to each identifiable component.
The following bases and rates are used to depreciate classes of assets:
Systems for rental — straight line over 4 yearsPlant and equipment — straight line over 4 to 5 yearsOffice Equipment — straight line over 2 yearsMotor vehicles — straight line over 3 years
The carrying values of property, plant and equipment are reviewed for impairment if events orchanges in circumstances indicate that the carrying value may not be recoverable and are writtendown immediately to their recoverable amount. Useful lives and residual values are reviewedannually and where adjustments are required these are made prospectively.
All property, plant and equipment is de-recognised on disposal, or when no future economicbenefits are expected to arise from the continued use of the asset. Any gain or loss arising onthe de-recognition of the asset is included in the Consolidated statement of comprehensiveincome in the period of de-recognition.
(j) Intangible assets
Intangible assets acquired either as part of a business combination or from contractual or otherlegal rights are recognised separately from goodwill, provided they are separable and their fairvalue can be measured reliably. This includes the costs associated with acquiring and registeringpatents in respect of intellectual property rights. Trademarks are assessed on recognising the fairvalue of assets acquired by calculating the future net book value of expected cash flows.
Where intangible assets recognised have finite lives, after initial recognition their carrying valueis amortised on a straight-line basis over those lives. The nature of those intangibles recognisedand their estimated useful lives are as follows:
Intellectual property licence — straight line over 4 yearsDevelopment costs — straight line over 6 yearsTrademarks — straight line over 5 years
(k) Impairment of assets
At each reporting date the Existing OTAQ Group reviews the carrying value of its plant,equipment and intangible assets to determine whether there is an indication that these assets havesuffered an impairment loss. If any such indication exists, or when annual impairment testing foran asset is required, the Existing OTAQ Group makes an assessment of the asset’s recoverableamount.
An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value lesscosts to sell and its value in use and is determined for an individual asset, unless the asset doesnot generate cash inflows that are largely independent of those from other assets or groups ofassets. Where the carrying value of an asset exceeds its recoverable amount, the asset isconsidered impaired and is written down to its recoverable amount. In assessing value in use, theestimated future cash flows are discounted to their present value using a pre-tax discount ratethat reflects current market assessments of the time value of money and the risks specific to theasset. In determining fair value less costs of disposal, an appropriate valuation model is used,
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these calculations corroborated by valuation multiples, or other available fair value indicators.Impairment losses on continuing operations are recognised in the consolidated statement ofcomprehensive income in those expense categories consistent with the function of the impairedasset.
An assessment is made at each reporting date as to whether there is any indication thatpreviously recognised impairment losses may no longer exist or may have decreased. If suchindication exists, the recoverable amount is estimated. A previously recognised impairment lossis reversed only if there has been a change in the assumptions used to determine the asset’srecoverable amount since the last impairment loss was recognised. If that is the case the carryingamount of the asset is increased to its recoverable amount. That increased amount cannot exceedthe carrying amount that would have been determined, net of depreciation, had no impairmentloss been recognised for the asset in prior years. Such reversal is recognised in the consolidatedstatement of comprehensive income unless the asset is carried at re-valued amount, in whichcase the reversal is treated as a valuation increase.
After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’srevised carrying amount, less any residual value, on a systematic basis over its remaining usefullife.
The carrying values of plant, equipment, intangible assets and goodwill as at the reporting dateshave not been subjected to impairment charges.
(l) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost based on latestcontractual prices includes all costs incurred in bringing each product to its present location andcondition. Net realisable value is based on estimated selling price less any further costs expectedto be incurred to disposal. Provision is made for slow-moving or obsolete items.
(m) Trade and other receivables
Trade receivables, which generally have 30-day terms, are recognised and carried at the lower oftheir original invoiced value and recoverable amount. It is the Existing OTAQ Group’s policy toassess receivables for recoverability on an individual basis and to make a provision where it isconsidered necessary. In assessing recoverability, the Existing OTAQ Group takes into accountany indicators of impairment up to the reporting date. Historically, the need for bad debtprovisions has been minimal with £nil of specific provision recognised in the year ended31 March 2019 (31 March 2018: £nil, 31 March 2017: £nil).
Due to the short-term nature of the current receivables, their carrying amount is considered to bethe same as their fair value determined using level 3 inputs. Trade and other receivablesrepresent financial assets and are considered for impairment on an expected credit loss model.
Information about the impairment of trade receivables and the company’s exposure to credit risk,foreign currency risk and interest rate risk can be found in note 24.
(n) Cash and cash equivalents
Cash and cash equivalents comprise cash at hand and deposits with maturities of three months orless.
(o) Trade and other payables
Trade and other payables, other than short-term loans, are non-interest bearing and are initiallyrecognised at fair value. They are subsequently measured at amortised cost using the effectiveinterest rate method.
(p) Provisions
Provisions are recognised when the Existing OTAQ Group has a present obligation (legal orconstructive) as a result of a past event and it is probable that an outflow of resourcesembodying economic benefits will be required to settle the obligation and a reliable estimate canbe made of the amount of the obligation.
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The expense relating to any provision is presented in the consolidated statement ofcomprehensive income, net of any expected reimbursement, but only where recoverability ofsuch reimbursement is virtually certain.
Provisions are discounted using a current pre-tax rate that reflects, where appropriate, the riskspecific to the liability. Where discounting is used, the increase in the provision due to thepassage of time is recognised as a finance cost.
There were no provisions at 31 March 2019 (2018: £nil, 2017: £nil).
(q) Financial assets and liabilities
Financial assets and liabilities are recognised when the Existing OTAQ Group becomes party tothe contracts that give rise to them and are classified as financial assets and liabilities at fairvalue through the Consolidated statement of comprehensive income. The Existing OTAQ Groupdetermines the classification of its financial assets and liabilities at initial recognition and re-evaluates this designation at each financial year end.
A financial asset or liability is generally de-recognised when the contract that gives rise to it issettled, sold, cancelled or expires.
(r) Share capital
Proceeds on issue of shares are included in shareholders’ equity, net of transaction costs. Thecarrying amount is not re-measured in subsequent years.
(s) Defined contribution pension scheme
The Existing OTAQ Group operates a defined contribution pension scheme. The assets of thescheme are held separately from those of the Existing OTAQ Group in an independentlyadministered fund. The amounts charged to profits or loss represent the contributions payable tothe scheme in respect of the accounting period.
(t) New accounting standards and interpretations
IFRS 9
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition andMeasurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects ofthe accounting for financial instruments: classification and measurement, impairment and hedgeaccounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, withearly application permitted. The company has retrospectively applied IFRS 9.
(i) Impairment
IFRS 9 requires the company to record expected credit losses (ECLs) on its debt securities,loans, amounts due from settlement of both investments and trade receivables, either on a12-month or lifetime basis. The company has determined that there is no material impactof ECLs on the historical financial information.
(ii) Hedge accounting
The Existing OTAQ Group has not applied hedge accounting.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for determining whether, how much and whenrevenue is recognised. IFRS 15 came into effect for accounting periods beginning on or after1 January 2018. It replaces existing revenue recognition guidance, including IAS 18 Revenue,IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The core principleis that an entity should recognise revenue to depict the transfer of promised goods and servicesto customers in an amount that reflects the consideration to which the entity is expected to beentitled to, in exchange for those goods or services.
Implementation of IFRS 15 had no significant impact on retained earnings at 1 April 2016 andstatement of financial position as at 31 March 2017, 31 March 2018 and 31 March 2019, and itsincome statement for the years ended 31 March 2017, 31 March 2018 and 31 March 2019.
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Both of these standards were effective as at 1 January 2019, but neither has had a significanteffect on the historical financial information of the Existing OTAQ Group.
The following new standards, amendments to standards and interpretations are effective forannual periods commencing on or after 1 January 2019 and have not been applied in preparingthe historical financial information; those that are relevant to the Existing OTAQ Group aresummarised below. None of these are expected to have a significant effect on the historicalfinancial information of the Existing OTAQ Group in the period of initial application.
The following standards and interpretations have an effective date after the date of this historicalfinancial information.
Effective date
IFRS 16 Leases 1 January 2019IFRIC 23 Uncertainty over income tax treatments 1 January 2019
4. Segmental information
Operating segments
At 31 March 2019, the Existing OTAQ Group operated in two primary segments, being the rental ofintelligent acoustic systems designed to deter seals and sea lions from attacking fish farms(Aquaculture) and rentals of underwater measurement & leak detection devices in the Offshore (oil &gas) market. This is the level at which operating results are reviewed by the chief operating decisionmaker (i.e. the CEO) to make decisions about resources, and for which financial information isavailable. All revenues have been generated from continuing operations and are from externalcustomers.
At 31 March 2018 and 31 March 2017, the Existing OTAQ Group operated as one segment being therental of intelligent acoustic systems designed to deter seals and sea lions from attacking fish farms(Aquaculture).
Year to31 March
2019£000
Year to31 March
2018£000
Year to31 March
2017£000
RevenueAmounts earned from Aquaculture equipment rentals andassociated charges 1,331 803 374Amounts earned from Offshore equipment rentals 142 — —Product Sales and development income 104 116 —
1,577 919 374
Included within amounts earned from system rentals and associated charges is revenue from twomaterial customers of £770,000 and £485,000 (2018: two material customers of £403,000 and£120,000, 2017: one material customer of £320,000).
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The Existing OTAQ Group operates in three main (2018: three, 2017: two) geographic areas, althoughall are managed in the UK. The Existing OTAQ Group’s revenue per geographical segment based oneach customer’s location is as follows:
The Existing OTAQ Group’s assets are located in the UK and South America.
5. Operating loss
31 March2019£000
31 March2018£000
31 March2017£000
The operating loss is stated after charging:Depreciation (see note 9) 337 119 66Grant Income — — 50Research and development expenses 142 106 82Amortisation of intangible assets (see note 10) 56 39 23Operating lease rentals for buildings (see note 23) 41 23 18Loan write off Mr PD Newby (see note 25) 40 — —Organisation development (training, coaching) 24 — —
Directors’ remuneration (including benefits-in-kind) includedin the aggregate remuneration above comprised:Emoluments for qualifying services 339 310 141
Directors’ emoluments (excluding social security costs but including benefits-in-kind) disclosed aboveinclude £133,000 paid to the highest-paid director (2018: £124,000, 2017: £77,000).
Retirement benefits are accruing to two directors (2018: one director, 2017: one director).
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The average number of employees during the year (including directors), was as follows:
Current income tax:UK corporation tax for the year 18 — —Research and development income tax credit receivable (18) (35) —Adjustment in respect of prior year — — (2)
Total current income tax — (35) (2)
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The tax assessed for the year varies from the standard rate of corporation tax as explained below:
31 March2019£000
31 March2018£000
31 March2017£000
Reported loss on ordinary activities before taxation (369) (528) (659)Add back losses incurred in Chile 21 5 —Add profits in acquired company pre acquisition 106 — —
UK loss on ordinary activities before taxation (242) (523) (659)UK tax credit at standard rate of 19% (2018: 19%, 2017:20%) (46) (97) (132)Fixed asset differences 11 — —Expenses not deductible for tax 10 1 —Deduction for R&D expenditure — (40) (21)Surrender of tax losses for R&D tax refund — 17 —Adjustment in respect of prior year (19) (87) 2Changes in tax rate 4 7 23Deferred Tax not recognised 40 164 130
Tax credit in income statement — (35) (2)
Reductions in the main rate of corporation tax from 20% to 19% (effective from 1 April 2017) and to18% (effective 1 April 2020) were substantively enacted on 26 October 2015.
An additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September2016. This will reduce the Existing OTAQ Group's future tax charge accordingly.
The Existing OTAQ Group has accumulated losses available to carry forward against future tradingprofits. The estimated value of the deferred tax asset, measured at a standard rate of 17% (2018: 17%,2017: 17%) is £309,000 (2018: £214,000, 2017: £223,000), of which £nil (2018: £nil, 2017: £nil) hasbeen recognised, as it is not certain that future taxable profits will be available against which theunused tax losses can be utilised.
The Existing OTAQ Group also has a deferred tax liability being accelerated capital allowances, forwhich the tax, measured at a standard rate of 17% (2018: 17%, 2017: 17%), is £101,000 (2018:£49,000, 2017: £31,000) and which has not been recognised, as it is covered by accumulated taxlosses.
At 31 March 2017 298 94 2 394Additions 489 21 10 520Disposals (39) (58) — (97)
At 31 March 2018 748 57 12 817Additions 1,147 28 10 1,185Acquisition 35 2 8 45Disposals — (24) — (24)
At 31 March 2019 1,930 63 30 2,023
Systems forRental£000
Plant andequipment
£000
Motorvehicles
£000Total£000
Depreciation:At 31 March 2016 8 43 — 51Provided during the year 43 26 — 69Eliminated on disposals — (1) — (1)
At 31 March 2017 51 68 — 119Provided during the year 104 13 2 119Eliminated on disposals (7) (52) — (59)
At 31 March 2018 148 29 2 179Provided during the year 311 16 10 337Eliminated on disposals — (15) (1) (16)
At 31 March 2019 458 30 11 499
Net book value:At 31 March 2019 1,472 33 19 1,524
At 31 March 2018 600 28 10 638
At 31 March 2017 250 26 2 278
As at 31 March 2019, assets with a net book value of £5,000 (2018: £8,000, 2017: £nil) were heldunder hire purchase agreements. Depreciation of £3,000 (2018: £3,000, 2017: £nil) was charged onthese assets during the year.
At 31 March 2018 — 142 133 275Additions — — 231 231Acquisition related 515 — — 515
At 31 March 2019 515 142 364 1,021
Amortisation:At 31 March 2016 — — — —Charge for the year — 23 — 23
At 31 March 2017 — 23 — 23Charge for the year — 24 15 39
At 31 March 2018 — 47 15 62Charge for the year — 36 20 56
At 31 March 2019 — 83 35 118
Net book value:At 31 March 2019 515 59 329 903At 31 March 2018 — 95 118 213At 31 March 2017 — 69 120 189
Intellectual property licences are amortised on a straight-line basis over four years, trademarks on astraight-line basis over five years and development costs on a straight-line basis over six years.Amortisation provided during a period is recognised in administrative expenses.
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11. Investment in subsidiaries
OTAQ GL’s subsidiaries at 31 March 2019, 31 March 2018 and 31 March 2017 are set out below.Unless otherwise stated, they have share capital consisting solely of ordinary shares, and theproportion of ownership interests held equals the voting rights held by the Existing OTAQ GL. Thecountry of incorporation or registration is also the principal place of business.
Subsidiaryundertakings
Country ofincorporation
Principalactivity
Class ofshares held
31 March2019
31 March2018
31 March2017
OTAQLimited
Scotland Fish farmsecurity
Ordinary 100% 100% 100%
OTAQ ChileSpA
Chile Fish farmsecurity
Ordinary 80% 80% 80%
OTAQOffshoreLimited*
Scotland Rental andSale toOffshoreOil and GasIndustry
Ordinary 100% — —
OTAQ Pty Ltd Australia Dormant Ordinary 100% 100% 100%
By subsidiary
* The entire issued share capital of OTAQ Offshore (formerly named Marinesense Limited) wasacquired on 23 November 2018 (see note 12).
All subsidiary undertakings were included in the consolidation. OTAQ GL does not have anyshareholdings in the preference shares of subsidiary undertakings.
12. Acquisition of subsidiary
(a) Summary of acquisition
On 23 November 2018, OTAQ GL acquired 100% of the issued share capital of OTAQOffshore, formerly Marinesense Limited, a developer and lessor of measuring equipment andcameras equipment for underwater use by the offshore industry. Details of the purchaseconsideration, the net assets acquired, and goodwill are as follows:
The deferred consideration consists of 151 shares issuable to the former owners of OTAQOffshore on the first anniversary of the acquisition, a deferred cash payment as shown due onthe second anniversary of completion, and a final payment of 151 shares on the third anniversaryof completion.
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Details of the contingent consideration are set out in (b) below.
The fair value of each of the 151 shares issued as part of the consideration paid for OTAQOffshore at the completion date was £1,650, the price prevailing at the time. The fair value of302 deferred consideration shares was based on the company's share price of £1,900 per sharedetermined as a result of a valuation performed in April 2019.
The fair value of the deferred cash payment and the contingent consideration, totalling £418,000,are included in financial liabilities. See also note 19. The assets and liabilities recognised as aresult of the acquisition are as follows:
In the event that on the third anniversary of completion, the market value of OTAQ GL’s sharesis less than £3,320 per share, a sum up to £250,000 might be payable to the previous owners.The fair value of the contingent consideration of £188,000 was estimated by calculating thepresent value of the future expected cash flows. The estimates are based on a discount rate of10% and assumed the market value of company’s shares on the third anniversary of completionof £1,900 per share.
In the event that certain pre-determined earnings before interest and taxes (EBIT) are achievedby the subsidiary for the year ending 31 March 2020, additional consideration of up to £150,000might be payable in cash once the subsidiary’s audited accounts for the year ending 31 March2020 are available. The Directors believe that the current forecast for OTAQ Offshore means thatthis earn-out will not be achieved.
(c) Acquired receivables
The fair value of acquired receivables is £140,000. The gross contractual amount for tradereceivables due is £140,000, none of which is expected to be uncollectible.
(d) Material intangible assets
The trademarks held by OTAQ Offshore are material to the Group. On average, these trademarkshave a remaining amortisation period of five years.
(e) Revenue and profit contributions
The acquired business contributed revenues of £142,000 and profit after tax of £7,000 to theExisting OTAQ Group for the period from 23 November 2018 to 31 March 2019.
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If the acquisition had occurred on 1 April 2018, consolidated revenue and profit for the yearended 31 March 2019 would have been higher by £339,000 and £107,000 respectively. Revenueand loss for the year ended 31 March 2019 would therefore have been £1,916,000 and £262,000respectively.
(f) Purchase consideration – cash outflow
2019 2018 2017£000 £000 £000
Outflow of cash to acquire subsidiary, net of cash acquiredCash consideration 250 — —Less: cash acquired (21) — —
Net outflow of cash – investing activities 229 — —
(g) Acquisition-related costs
Acquisition-related costs of £24,000 (2018: £nil, 2017: £nil) that were not directly attributable tothe issue of shares are included in administrative expenses in profit or loss and in operating cashflows in the consolidated statement of cash flows.
13. Inventories
As at31 March
2019£000
As at31 March
2018£000
As at31 March
2017£000
Stock 536 75 30Work in progress 1 209 32
537 284 62
Inventories at 31 March 2019 include £206,000 of OTAQ Offshore inventories (2018: £nil, 2017:£nil).
Trade receivables are non-interest bearing and are generally due and paid within 30 days. TheDirectors consider that the carrying amount of trade and other receivables approximates to their fairvalue and that no impairment is required at the reporting dates. Trade and other receivables representfinancial assets and are amortised for impairment on an expected credit loss model. Therefore, there isno provision for impairment at 31 March 2019 (31 March 2018: £nil, 31 March 2017: £nil).
Trade receivables at 31 March 2019 include £140,000 for OTAQ Offshore (2018: £nil, 2017: £nil).
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15. Income tax assetAs at
31 March2019
As at31 March
2018
As at31 March
2017£000 £000 £000
Research and development income receivable 54 35 —
54 35 —
16. Cash and cash equivalentsAs at
31 March2019
As at31 March
2018
As at31 March
2017£000 £000 £000
Cash and cash equivalents 368 301 94
368 301 94
An analysis of cash and cash equivalents and deposits by denominated currency is given in note 24.
17. Trade and other payables
The Directors consider that the carrying amount of trade and other payables approximates to their fairvalue.
Repayable between one and five yearsDeferred payment for acquisition 418 — —Deferred tax 2 — —Development loan — 7 24Hire purchase liability 1 4 —
421 11 24
The deferred payment for acquisition relates to the acquisition in November 2018 of OTAQ Offshore.Consideration for the acquisition was partly in shares and partly in cash. See note 12.
The interest-bearing loans are due to various shareholders, include interest accrued and are repayablewithin 12 months. Interest is charged on the loans at an interest rate of 10% per annum. The loanswere taken out as follows:
* £180,000 in January 2018
* £80,000 in March 2018
* £25,000 in May 2018
In all cases, as the loans have become due, they have each been rolled over for a further 12 months.
The development loan originally totalled £50,000 and comprised two tranches of £25,000. Eachtranche was repayable over 36 months and bears interest at 4% per annum. The loan has been fullyrepaid since 31 March 2019.
The hire purchase liability is repayable over 36 months and bears interest at the rate of 8% perannum.
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20. Issued share capital
Ordinaryshares
Sharecapital
Sharepremium Total
Number £000 £000 £000
Allotted, called up and fully paid ordinaryshares of 3.125 penceAs at 31 March 2016 20 — 400 400Share subdivision 620 — — —
Shares issued for cash 755 — 755 755
As at 31 March 2017 1,395 — 1,155 1,155Shares issued for cash 820 — 871 871Expenses of share issues — — (36) (36)
As at 31 March 2018 2,215 — 1,990 1,990
Shares issued as part of acquisition 151 — 249 249Shares issued for cash 830 — 1,355 1,355Expenses of share issues — — (63) (63)
As at 31 March 2019 3,196 — 3,531 3,531
The balances classified as share capital and share premium include the total net proceeds (nominalvalue and share premium respectively) on issue of the company's equity share capital, comprisingordinary shares.
Share issues in the year to March 2019
During April 2018, OTAQ GL raised gross proceeds of £34,500 through the issue of 30 ordinaryshares at an issue price of £1,150 per share.
During July 2018, OTAQ GL raised gross proceeds of £1,320,000 through the issue of 800 ordinaryshares at an issue price of £1,650 per share.
Expenses associated with above shares issued in the year to 31 March 2018 totalled £63,000 and havebeen deducted from share premium.
On 20 November 2018, OTAQ GL issued 151 shares valued at £1,650 per share with a combinedvalue of £249,000, being part of the consideration for the acquisition of OTAQ Offshore. See alsonote 12.
Share issues in the year to 31 March 2018
On 12 September 2017, OTAQ GL raised gross proceeds of £264,000 through the issue of 251ordinary shares at an issue price of £1,050 per share.
On 13 September 2017, OTAQ GL raised gross proceeds of £68,000 through the issue of 68 ordinaryshares at an issue price of £1,000 per share.
Between 15 February 2017 and 23 March 2018, OTAQ GL raised gross proceeds of £539,000 throughthe issue of 469 ordinary shares at an issue price of £1,150 per share.
Expenses associated with above shares issued in the year to 31 March 2018 totalled £36,000 and havebeen deducted from share premium.
On 31 October 2017, OTAQ GL issued 32 shares at an issue price of £0.0778125 per share, inconsideration for the 249 ordinary shares in OTAQ (Scotland) Limited previously held by a minorityshareholder.
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Share issues in the year to March 2017
On 11 January 2017 each ordinary share of £1 was sub-divided into 32 ordinary shares with anominal value of 3.125 pence each.
Between 16 and 23 January 2017, OTAQ Group Limited raised gross proceeds of £755,000 throughthe issue of 755 ordinary shares at an issue price of £1,000 per share.
21. Non-controlling interests and other reserves
Non-controlling
interestsOther
reserve£000 £000
At 31 March 2016 (62) —Minority interest's share of the loss for the year (56) —
At 31 March 2017 (118) —Minority interests' share of the loss for the year (6) —Reclassify reserve following the acquisition of the minority interest in OTAQLimited 122 (122)
At 31 March 2018 (2) (122)Minority interests' share of the loss for the year (4) —Deferred shares to be issued — 477
At 31 March 2019 (6) 355
The balance classified as non-controlling interests represents the cumulative losses attributable to theongoing non-controlling interests in OTAQ Chile SpA.
The balance classified as other reserve represents the cumulative losses attributable to the interests ofminorities in OTAQ (Scotland) Limited prior to its acquisition by OTAQ GL on 31 October 2018 andthe value of deferred shares to be issued as part of the consideration for OTAQ Offshore. See note 12.
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22. Revenue reserve
£000
At 31 March 2016 (130)Loss for the year (601)
At 31 March 2017 (731)Loss for the year (487)
At 31 March 2018 (1,218)Loss for the year (365)
At 31 March 2019 (1,583)
The revenue reserve represents the cumulative losses attributable to the equity holders of OTAQ GL.
23. Commitments
Operating lease commitments
The Existing OTAQ Group leases premises under non-cancellable operating lease agreements. Thefuture aggregate minimum lease and service charge payments under non-cancellable operating leasesare as follows:
31 March2019
31 March2018
31 March2017
£000 £000 £000
Land and buildings:Not later than one year 16 22 15After one year but not more than five years — 16 6
16 38 21
Capital commitments
The Existing OTAQ Group was committed to the following capital expenditure contracted in eachfinancial year:
31 March2019
31 March2018
31 March2017
£000 £000 £000
Capital Commitments 149 940 —
24. Financial risk management
Overview
This note presents information about the Existing OTAQ Group’s exposure to various kinds offinancial risks, the group’s objectives, policies and processes for measuring and managing risk, and theExisting OTAQ Group’s management of capital.
The board has overall responsibility for the establishment and oversight of the Existing OTAQ Group’srisk management framework. The executive directors report regularly to the board on Existing OTAQGroup risk management.
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Capital risk management
The Existing OTAQ Group reviews its forecast capital requirements regularly to ensure that entities inthe group will be able to continue as a going concern while maximising the return to stakeholders.
The capital structure of the OTAQ GL consists of equity attributable to equity holders of theCompany, comprising issued share capital, share premium, other reserve and retained earnings asdisclosed in notes 20 to 22 and in the consolidated statement of changes in equity. Total equityattributable to OTAQ equity holders was £2,303,000 at 31 March 2019 (£650,000 at 31 March 2018,£424,000 at 31 March 2017).
The OTAQ GL is not subject to externally imposed capital requirements.
Liquidity risk
The Existing OTAQ Group’s approach to managing liquidity is to ensure that, as far as possible, itwill always have sufficient liquidity to meet its liabilities when due, under both normal and stressedconditions, without incurring unacceptable losses or risking damage to the Existing OTAQ Group’sreputation.
The Existing OTAQ Group manages all of its external bank relationships centrally. Any materialchange to the Existing OTAQ Group’s principal banking facility requires board approval.
31 March 2019Trade receivables 370 — 370Cash and cash equivalents 368 — 368Trade and other payables* — (470) (470)Loans — (322) (322)Deferred payment for Acquisition — (418) (418)
738 (1,210) (472)
31 March 2018Trade receivables 179 — 179Cash and cash equivalents 301 — 301Trade and other payables * — (399) (399)Loans — (260) (260)Financial liabilities — (31) (31)
480 (690) (210)
31 March 2017Trade receivables 59 — 59Cash and cash equivalents 94 — 94Trade and other payables * — (209) (209)Loans — — —Financial liabilities — (41) (41)
153 (250) (97)
*Excluding accruals and deferred revenue
The values disclosed in the above table are carrying values. The Directors consider that the carryingamount of financial assets and liabilities approximates to their fair value.
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The board of directors reviews and agrees policies for managing credit risk and foreign currency riskwhich are summarised below.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligationor commitment that it has entered into with the Existing OTAQ Group and the risk that any debtorsof the Existing OTAQ Group may default on amounts due to the Existing OTAQ Group. The ExistingOTAQ Group’s principal financial assets are trade receivables, other debtors, and cash equivalents.
The Existing OTAQ Group has a policy of only dealing with creditworthy counterparties. All tradereceivables are ultimately overseen by the director responsible for finance and are managed on a day-to-day basis by the finance team. Credit limits are set as deemed appropriate for each customer. TheExisting OTAQ Group had £370,000 of trade receivables at the year ended 31 March 2019 (31 March2018: £179,000, 31 March 2017: £59,000). The Existing OTAQ Group’s exposure to credit risk isinfluenced mainly by the individual characteristics of each customer or counterparty. However,management also considers the factors that may influence the credit risk of its customer orcounterparty base, including the default risk associated with the industry and country in which thecustomer or counterparty operates. The maximum exposure to credit risk in relation to cash and cashequivalents is the carrying value at the balance sheet date.
Foreign currency risk
The Existing OTAQ Group has limited exposure to currency risk on sales and purchases that aredenominated in a currency other than the respective functional currency of the Existing OTAQ Group.The risk is in respect of Euros (EUR) and Chilean Pesos (CLP). Transactions outside these currenciesare limited.
The group may use forward exchange contracts as an economic hedge against currency risk, wherecash flow can be judged with reasonable certainty. Foreign exchange swaps and options may be usedto hedge foreign currency receipts in the event that the timing of the receipt is less certain. Therewere no open forward contracts as at 31 March 2019 or at 31 March 2018 or at 31 March 2017 andthe group did not enter into any such contracts during 2019 nor 2018 nor 2017.
The split of the Existing OTAQ Group assets between Sterling and other currencies at the year-end isanalysed as follows:
Sensitivity analysis to movement in exchange rates
Given the immaterial asset and liability balances denominated in foreign currency, the exposure to achange in exchange rates is negligible.
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Interest rate risk
The Existing OTAQ Group's external borrowings are at fixed interest rates, therefore the risk is limitedto the reduction in interest received on cash surpluses held at bank which receive a floating rate ofinterest. The principal impact to the Existing OTAQ Group is the result of interest-bearing cash andcash equivalent balances held as set out below:
Set out below is the maturity profile of the group’s financial liabilities at each year-end based oncontractual undiscounted payments including contractual interest.
Less than1 year 1 to 5 years Total
2019 £000 £000 £000
Financial liabilitiesTrade and other payables * 470 — 470Financial liabilities 321 1 322
791 1 792
Less than1 year 1 to 5 years Total
2018 £000 £000 £000
Financial liabilitiesTrade and other liabilities * 399 — 399Financial liabilities 280 11 291
679 11 690
Less than1 year 1 to 5 years Total
2017 £000 £000 £000
Financial liabilitiesTrade and other liabilities * 209 — 209Financial liabilities 17 24 41
226 24 250
*Excluding accruals. Trade and other payables are due within three months.
The Directors consider that the carrying amount of the financial liabilities approximates to their fairvalue.
As all financial assets are expected to mature within the next twelve months, an aged analysis offinancial assets has not been presented.
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25. Related-party transactions
Transactions with shareholders and companies controlled by directors
The following transactions with shareholders and companies controlled by directors of the Companywere recorded, excluding VAT, during the year:
31 March2019
31 March2018
31 March2017
Charges incurred during the year £000 £000 £000
ROS Technology Limited – a company controlled by adirectorFor management charges invoiced 1 53 68Parkfield (Barrow) Limited – a company controlled by adirectorFor goods and services (credited)/invoiced — (3) 128Corsie Technology Limited – a company controlled by adirectorFor goods and services provided 81 85 83Enhansis – a company controlled by a directorFor goods and services provided — 21 —Mont Joly – a company controlled by a directorFor goods and services provided 65 21 —Atlantis – a company controlled by a directorFor goods and services provided — 26 —
Balances at the end of the yearROS Technology Limited – a company controlled by adirectorInvoices payable by the Existing OTAQ Group — 10 11Accruals payable by the Existing OTAQ Group — 4Parkfield (Barrow) Limited – a company controlled by adirectorInvoices payable by the Existing OTAQ Group — — 20Corsie Technology Limited – a company controlled by adirectorInvoices payable by the Existing OTAQ Group — — 11Enhansis – a company controlled by a directorInvoices payable by the Existing OTAQ Group — 9 —Trucial Energy Limited – a company having commonshareholdersInvoices payable to the Existing OTAQ Group — — 40Invoices payable by the Existing OTAQ Group — 37Mr P D Newby – a directorDebt due to the Existing OTAQ Group — 40 —Various shareholdersShort-term loans payable by the Existing OTAQ Group 311 260 —
26. Compensation of key management personnel (including directors)
2019 2018 2017£000 £000 £000
Employment costs 470 371 249Pension costs 4 — —
474 371 249
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27. Events subsequent to the reporting period
(a) Issue of new ordinary shares
During April 2019, 550 new ordinary shares were issued, raising £993,000 net of fees; inaddition, 15 new shares were issued to Mr J. Mundi, a director, in satisfaction of a loan madeby him to the company.
(b) Further debt funding
During May 2019, debt funding was raised, totalling £192,000 after fees, partially from existingshareholders to fund future expansion.
(c) Ownership of OTAQ Chile
During May 2019, the holder of 20% of the issued share capital of OTAQ Chile agreed to signover to OTAQ GL half of his shares, to the effect that the non-controlling interest was reducedto 10% of the company, OTAQ GL owning 90%. Negotiations on extending the ownership ofOTAQ Chile by the group to 100% continue; the Directors believe that this will result in a smallnumber of OTAQ GL shares being issued to the other shareholder in Chile as part of thisarrangement in due course.
(d) Acquisition of OTAQ Connectors
On 29 April 2019, OTAQ GL acquired 100% of the issued share capital of OTAQ Connectors(formerly named Link Subsea Limited), a supplier of connectors, penetrators and underwatercommunication products for the offshore, seismic, commercial, diving and nuclear energyindustries. The acquisition has significantly increased the group's market share in these markets.Details of the purchase consideration, the net assets acquired and goodwill are as follows:
The deferred consideration consists of eight shares to be issued to the former owners of OTAQConnectors plus half of the deferred cash payment; on the first anniversary of the acquisition afurther seven shares will be issued together with a final payment of the balance of the deferredcash payment on the second anniversary of completion.
There is no contingent consideration.
The fair value of the 35 shares issued as part of the consideration paid for OTAQ Connectors atthe completion date (see Note 20 “Issued share capital”), as well as the fair value of 15 deferredconsideration shares was based on the company’s share price of £1,900 per share determined asa result of a Valuation performed in April 2019.
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The assets and liabilities recognised as a result of the acquisition are as follows:
Net identifiable assets acquired 401Add: Goodwill 419
Net assets acquired 820
The goodwill is attributable to the workforce and the high profitability of the acquired business.It will not be deductible for tax purposes.
OTAQ Connectors manufactures a range of industry-standard products and has not historicallyused trade names, so the directors consider there are no intangibles to be recognised at fairvalue.
The fair value of acquired receivables is £174,000. The gross contractual amount for tradereceivables due is £174,000, none of which is expected to be uncollectible.
The net purchase consideration to acquire OTAQ Connectors, being the outflow of cash less cashacquired was £289,000.
(e) On 7 February 2020, Marinesense Limited changed its name to OTAQ Offshore Limited andOTAQ Limited changed its name to OTAQ Aquaculture Limited.
(f) Incorporation of Oceansense Limited
Oceansense Limited was incorporated on 7 August 2019, is a wholly-owned subsidiary of OTAQGL, and has not traded since incorporation.
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SECTION C: ACCOUNTANT’S REPORT ON THE HISTORICAL FINANCIALINFORMATION OF OTAQ CONNECTORS
The following is the full text of a report on OTAQ Connectors from RSM Corporate Finance LLP, theReporting Accountants, to the Directors of the Company.
The DirectorsHertsford Capital plcc/o Fladgate LLP16 Great Queen StreetLondonWC2B 5DG
24 March 2020
Dear Sirs,
OTAQ Connectors Limited
We report on the historical financial information of OTAQ Connectors Limited (“OTAQ Connectors”) setout in Section D of Part 9 of the prospectus dated 24 March 2020 (“Prospectus”) of Hertsford Capital plc(the “Company”). This historical financial information has been prepared for inclusion in the Prospectus onthe basis of the accounting policies set out at Note 2 to the historical financial information. In this letter,“Prospectus Regulation Rules” means the rules known as such as issued by the FCA under Part VI ofFSMA and as amended, consolidated, re-enacted, or replaced from time to time implementing andincorporating inter alia the Prospectus Regulation (Regulation (EU) 2017/1129 of the European Parliament)and the Prospectus Supplementary Regulation (Commission Delegated Regulation (EU) 2019/980). Thisreport is required by Rule 18 of Annex 1 of the Prospectus Regulation Rules and is given for the purposeof complying with that paragraph and for no other purpose.
Responsibilities
The directors of the Company (the “Directors”) are responsible for preparing the historical financialinformation in accordance with International Financial Reporting Standards as adopted by the EuropeanUnion.
It is our responsibility to form an opinion on the historical financial information and to report our opinionto you.
Save for any responsibility arising under Prospectus Regulation Rule 5.3.2R(2)(f) to any person as and tothe extent there provided, to the fullest extent permitted by law, we do not accept or assume responsibilityand will not accept any liability to any other person for any loss suffered by any such other person as aresult of, arising out of, or in connection with this report or our statement, required by and given solely forthe purposes of complying with Rule 1.3 of Annex 1 of the Prospectus Regulation Rules, or consenting toits inclusion in the Prospectus.
Basis for qualified opinion
The audit evidence available to us with respect to inventory balances at 31 December 2016, 31 December2017 and 31 March 2019 was limited due to the circumstances described below:
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For the year ended 31 December 2016
With respect to inventory having a carrying value of £32,500, the audit evidence available to us was limitedbecause the financial statements for the year ended 31 December 2016 were unaudited and therefore therewas no auditor attendance at the counting of physical inventories at 31 December 2016 or at the openingbalance sheet date. Owing to the nature of the company’s records, we were unable to obtain sufficientappropriate audit evidence regarding the inventory quantities and values by using other audit procedures.Consequently, we were unable to determine whether any adjustments to inventory as at 31 December 2016were necessary and therefore also to cost of sales for the year ended 31 December 2016.
For the year ended 31 December 2017
With respect to inventory having a carrying value of £37,200, the audit evidence available to us was limitedbecause the financial statements for the year ended 31 December 2017 were unaudited and therefore therewas no auditor attendance at the counting of physical inventories at 31 December 2017 or at the openingbalance sheet date. Owing to the nature of the company’s records, we were unable to obtain sufficientappropriate audit evidence regarding the inventory quantities and values by using other audit procedures.Consequently, we were unable to determine whether any adjustments to inventory as at 31 December 2017were necessary and therefore also to cost of sales for the year ended 31 December 2017.
For the period ended 31 March 2019
With respect to inventory having a carrying value of £40,200, the audit evidence available to us was limitedbecause the financial statements for the period ended 31 March 2019 were unaudited and therefore therewas no auditor attendance at the counting of physical inventories at 31 March 2019 or at the openingbalance sheet date. Owing to the nature of the company’s records, we were unable to obtain sufficientappropriate audit evidence regarding the inventory quantities and values by using other audit procedures.Consequently, we were unable to determine whether any adjustments to inventory as at 31 March 2019were necessary and therefore also to cost of sales for the year ended 31 March 2019.
We conducted our work in accordance with Standards for Investment Reporting issued by the FinancialReporting Council in the United Kingdom. Our work included an assessment of evidence relevant to theamounts and disclosures in the historical financial information. It also included an assessment of significantestimates and judgments made by those responsible for the preparation of the historical financial informationand whether the accounting policies are appropriate to the entity’s circumstances, consistently applied andadequately disclosed.
We planned our work so as to obtain all the information and explanations we considered necessary in orderto provide us with sufficient evidence to give reasonable assurance that the historical financial information isfree from material misstatement whether caused by fraud or other irregularity or error. We believe that theaudit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.
Qualified opinion
In our opinion, except for the possible effects of the matter described in the basis for qualified opinionsection of our report, the historical financial information gives, for the purposes of the Prospectus, a trueand fair view of the state of affairs of OTAQ Connectors as at the dates stated and of its results, cash flowsand changes in equity for the periods then ended in accordance with International Financial ReportingStandards as adopted by the European Union.
Declaration
For the purposes of Prospectus Regulation Rule 5.3.2R(2)(f) we are responsible for this report as part of theProspectus and declare that, to the best of our knowledge, the information contained in this report is inaccordance with the facts and that this report makes no omission likely to affect its import. This declarationis included in the Prospectus in compliance with Rule 1.2 of Annex 1 of the Prospectus RegulationRules and Rule 1.2 of Annex 11 of the Prospectus Regulation Rules.
Yours faithfully
RSM Corporate Finance LLP
Regulated by the Institute of Chartered Accountants in England and Wales
RSM Corporate Finance LLP is a limited liability partnership registered in England and Wales, registered no. OC325347.A list of the names of members is open to inspection at the registered office 25 Farringdon Street London EC4A 4AB
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SECTION D: HISTORICAL FINANCIAL INFORMATION OF OTAQ CONNECTORSFOR THE PERIODS ENDED 31 DECEMBER 2016, 31 DECEMBER 2017
AND 31 MARCH 2019
OTAQ CONNECTORS
STATEMENT OF COMPREHENSIVE INCOME
Note
Year ended31 December
2016
Year ended31 December
2017
15-monthperiod ended
31 March2019
£ £ £
Revenue 4 520,290 746,812 1,084,075Cost of sales (327,393) (399,709) (577,749)
Profit before taxation 94,677 200,812 412,204Taxation 8 (19,228) (441,056) (78,491)
Profit/(loss) and total comprehensiveincome for the year/period attributableto the equity owners of the company 75,449 (240,244) 333,713
The above results were derived from continuing operations.
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OTAQ CONNECTORS
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2016, 31 DECEMBER 2017 AND 31 MARCH 2019
Note
At31 December
2016
At31 December
2017At 31 March
2019£ £ £
ASSETSNon-current assetsProperty, plant and equipment 10 27,330 26,611 25,859
Total non-current assets 27,330 26,611 25,859
Current assetsTrade and other receivables 11 86,189 153,489 289,378Inventories 12 32,500 37,200 40,200Cash and cash equivalents 13 374,405 79,100 183,184
Total current assets 493,094 269,789 512,762
Total assets 520,424 296,400 538,621
EQUITY AND LIABILITIESEquityShare capital 15 100 100 100Retained earnings 457,529 96,919 354,726
Total equity attributable to the equityowners of the company 457,629 97,019 354,826
Current liabilitiesTrade and other payables 14 62,795 199,381 183,795
Total current liabilities 62,795 199,381 183,795
Total equity and liabilities 520,424 296,400 538,621
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OTAQ CONNECTORS
STATEMENT OF CHANGES IN EQUITY
FOR THE PERIODS ENDED 31 DECEMBER 2016, 31 DECEMBER 2017 AND 31 MARCH 2019
Note Share capitalRetainedearnings Total
£ £ £
Balance at 1 January 2016 100 480,822 480,922
Comprehensive IncomeProfit and total comprehensive income forthe year — 75,449 75,449Transactions with ownersDividends paid 9 — (98,742) (98,742)
Balance at 31 December 2016 100 457,529 457,629
Comprehensive IncomeLoss and total comprehensive loss for theyear — (240,244) (240,244)Transactions with ownersDividends paid 9 — (120,366) (120,366)
Balance at 31 December 2017 100 96,919 97,019
Comprehensive IncomeProfit and total comprehensive income forthe period — 333,713 333,713Transactions with ownersDividends paid 9 — (75,906) (75,906)
Balance at 31 March 2019 100 354,726 354,826
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OTAQ CONNECTORS
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED 31 DECEMBER 2016, 31 DECEMBER 2017 AND 31 MARCH 2019
Note
Year ended31 December
2016
Year ended31 December
2017
15-monthperiod ended
31 March2019
£ £ £
Cash flows from operating activitiesProfit before taxation 94,677 200,812 412,204Adjustments for non-cash/non-operatingitems:Gain on sale of property, plant andequipment (2,500) (724) —Finance income 7 (529) (126) (1,502)Finance expense 7 — 39,660 —Depreciation of tangible assets 10,767 16,383 10,109
102,415 256,005 420,811Changes in working capital:(Increase)/decrease in trade and otherreceivables 82,598 (67,300) (135,889)(Increase)/decrease in inventories 12,500 (4,700) (3,000)Increase/(decrease) in trade and otherpayables (8,371) 31,191 (9,611)
Cash from operations 189,142 215,196 272,313Taxation (37,234) (371,013) (84,466)
Net cash from/(used in) operatingactivities 151,908 (155,817) 187,845
Cash flows from investing activitiesPurchases of tangible fixed assets (29,500) (31,041) (9,357)Proceeds from the sale of plant andequipment 2,500 16,100 —Interest received 529 126 1,502
Net cash used in investing activities (26,471) (14,815) (7,855)
Net cash used in financing activities (98,742) (124,673) (75,906)
Net increase/(decrease) in cash and cashequivalents 26,695 (295,305) 104,084Cash and cash equivalents at beginning ofperiod 347,710 374,405 79,100
Cash and cash equivalents at end ofperiod 13 374,405 79,100 183,184
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NOTES TO THE HISTORICAL FINANCIAL INFORMATION
1. General Information
OTAQ Connectors (formerly named Link Subsea Limited) is a private company limited by sharesincorporated in England and Wales. The company is domiciled in England and its registered office is8-3-4 South Road, Lancaster, Cumbria, LA1 4XF.
The principal activity of the company is that of the manufacture and supply of underwatercommunication and other marine goods to the offshore, seismic, commercial and nuclear energysectors.
The principal accounting policies adopted by OTAQ Connectors are set out in note 2.
2. Accounting policies
(a) Basis of preparation
The historical financial information presents the financial track record of OTAQ Connectors forthe two years ended 31 December 2016, 31 December 2017 and a period of 15 months ended31 March 2019. This historical financial information has been prepared in accordance withInternational Financial Reporting Standards and interpretations issued by the InternationalFinancial Reporting Interpretations Committee (“IFRIC”) as adopted by the European Union“IFRS”).
This historical financial information is prepared under the historical cost convention, as modifiedby the use of fair value for financial instruments measured at fair value. The historical financialinformation is presented in pounds sterling (“£”) except where otherwise indicated.
The principal accounting policies adopted in the preparation of the historical financialinformation are set out below. The policies have been consistently applied to all the periodspresented, unless otherwise stated.
(b) Going concern
At 31 March 2019, the Existing OTAQ Group (of which OTAQ Connectors is a wholly ownedsubsidiary) had net assets of approximately £2.3 million and cash of approximately £368,000.These amounts improved to approximately £3.3 million and £1.1 million as at 30 September2019, the date of the unaudited interims contained in Part 11. The Directors have reviewed theEnlarged Group’s projected cash flows for a period of at least twelve months from the date ofthis document which demonstrate that, dependent on successful completion of the Acquisition,the Placing and the Re-admission, the Enlarged Group can meet its liabilities as they fall due.As such this consolidated historical financial information has been prepared on a going concernbasis.
(c) New standards, amendments and interpretations
None of the standards, interpretations and amendments effective for the first time from 1 January2018, including IFRS 9 and IFRS 15, which have been adopted from the conversion date of1 January 2016, have had a material effect on the historical financial information.
IFRS 9
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition andMeasurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects ofthe accounting for financial instruments: classification and measurement, impairment and hedgeaccounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, withearly application permitted. The company has retrospectively applied IFRS 9.
(i) Impairment
IFRS 9 requires the company to record expected credit losses (ECLs) on its debt securities,loans and amounts due from the settlement of both investments and trade receivables,either on a 12-month or lifetime basis. The company has determined there is no materialimpact of ECLs on the historical financial information statements.
(ii) Hedge accounting
The company has not applied hedge accounting.
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IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for determining whether, how much and whenrevenue is recognised. It replaces existing revenue recognition guidance, including IAS 18Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The coreprinciple is that an entity should recognise revenue to depict the transfer of promised goods tocustomers in an amount that reflects the consideration to which the entity is expected to beentitled in exchange for those goods.
Implementation of IFRS 15 had no significant impact on retained earnings at 1 January 2016 thestatement of financial position as 31 December 2016, 31 December 2017 and 31 March 2019, orthe income statement for the periods ended 31 December 2016, 31 December 2017 and31 March 2019.
The following standards have not been applied in preparing the Historical Financial Information:
IFRS 16 Leases
This is effective for year ended 31 March 2020. The company is assessing the impact ofIFRS 16 which, based upon leases presently held by the company, is likely to increase EBITDAand net interest charges by similar amounts with an immaterial effect on profit before taxation.The amounts to be included under the standard into fixed assets and net debt respectively willbe more definitively assessed nearer the time and are dependent upon lease agreements that willbe in existence at that point.
(d) Segmental reporting
The company operates in one single business segment with sales made in the UK, NorthAmerica, Middle East and the Rest of the World as set out in note 4.
(e) Revenue recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to thecompany and the revenue can be reliably measured. Revenue is measured at the fair value of theconsideration received or receivable for the sale of goods, excluding discounts, rebates, VAT andother sales taxes or duties. Deposits received in advance are deferred and recognised at the endof the contract when applicable.
(f) Net finance costs
Finance costs
Finance costs comprise statutory interest and penalties are expensed in the period in which theyare incurred.
Finance income
Finance income comprises interest receivable on directors’ loans. Interest income is recognised inprofit or loss as it accrues using the effective interest method.
(g) Employee benefits: pension obligations
The company operates a defined contribution plan. A defined contribution plan is a pension planunder which the company pays fixed contributions into a separate entity. The company has nolegal or constructive obligations to pay further contributions if the fund does not hold sufficientassets to pay all employees the benefits relating to employee service in the current and priorperiods.
The company has no further payment obligations once the contributions have been paid. Thecontributions are recognised as employee benefit expense when they are due. Prepaidcontributions are recognised as an asset to the extent that a cash refund or a reduction in thefuture payments is available.
(h) Financial assets
Classification
The company classifies all of its financial assets as receivables and cash. Management determinesthe classification of its financial assets at initial recognition.
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Receivables
Trade receivables, which generally have 30-day terms, are recognised and carried at the lower oftheir original invoiced value and recoverable amount. The time value of money is not material.Provision is made when there is objective evidence that the company will not be able to recoverbalances in full. Significant financial difficulties faced by the customer, probability that thecustomer will enter bankruptcy or financial reorganisation and default in payments are consideredindicators that the trade receivable is impaired. The amount of the provision is the differencebetween the asset’s carrying amount and the present value of estimated future cash flows,discounted at the original effective interest rate. The carrying value of the asset is reducedthrough the use of an allowance account, and the amount of the loss is recognised in thestatement of comprehensive income within administrative expenses. When a trade receivable isuncollectable, it is written off against the allowance account for trade receivables.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and at bank.
Impairment of financial assets
Impairment provisions are recognised when there is objective evidence (such as significantfinancial difficulties on the part of the counterparty or default or significant delay in payment)that the company will be unable to collect all of the amounts due under the terms receivable, theamount of such a provision being the difference between the net carrying amount and thepresent value of the future expected cash flows associated with the impaired asset.
(i) Trade and other payables
Trade and other payables are initially recognised at fair value and subsequently measured atamortised cost using the effective interest rate method. Accounts payable are classified as currentliabilities if payment is due within one year or less. If not, they are presented as non-currentliabilities.
(j) Share capital
Proceeds on issue of shares are included in shareholders’ equity, net of transaction costs. Thecarrying amount is not re-measured in subsequent years.
(k) Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially allthe risks and rewards of ownership to the lessee. All other leases are classified as operatingleases.
Leases in which a significant portion of the risks and rewards of ownership are retained by thelessor are classified as operating leases. The costs associated with operating leases are taken tothe statement of comprehensive income on an accruals basis over the period of the lease.
(l) Property, plant and equipment
Property, plant and equipment assets are recognised initially at cost. After initial recognition,these assets are carried at cost less any accumulated depreciation and any accumulatedimpairment losses.
Cost comprises the aggregate amount paid and the fair value of any other consideration given toacquire the asset and includes costs directly attributable to making the asset capable of operatingas intended.
Depreciation is computed by allocating the depreciable amount of an asset on a systematic basisover its useful life and is applied separately to each identifiable component.
The following bases and rates are used to depreciate classes of assets:
Improvements of property — in accordance with the propertyPlant and machinery — 20% on costFixtures and Fittings — 15% on costMotor vehicles — 25% on costComputer equipment — 33% on cost
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The carrying values of property, plant and equipment are reviewed for impairment if events orchanges in circumstances indicate that the carrying value may not be recoverable and are writtendown immediately to their recoverable amount. Useful lives and residual values are reviewedannually and where adjustments are required these are made prospectively.
A property, plant and equipment item is de-recognised on disposal or when no future economicbenefits are expected to arise from the continued use of the asset. Any gain or loss arising onthe de-recognition of the asset is included in the Statement of comprehensive income in theperiod of de-recognition.
(m) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost based on latestcontractual prices includes all costs incurred in bringing each product to its present location andcondition. Net realisable value is based on estimated selling price less any further costs expectedto be incurred to disposal. Provision is made for slow-moving or obsolete items.
(n) Income tax
Income tax for the periods presented comprises current tax. Income tax is recognised in profit orloss except to the extent that it relates to items recognised directly in equity, in which case it isrecognised in equity.
(o) Investments
Investments are categorised as fair value through profit or loss. Movements in fair value oninvestments are included within income in the Statement of Comprehensive Income.
3. Significant accounting estimates and judgements
The preparation of the company’s historical financial information under IFRS as endorsed by the EUrequires the Directors to make estimates and assumptions that affect the reported amounts of assetsand liabilities at the statement of financial position date, amounts reported for revenues and expensesduring the period and the disclosure of contingent liabilities, at the reporting date. However,uncertainty about these assumptions and estimates could result in outcomes that could require amaterial adjustment to the carrying amount of the assets or liabilities affected in the future.
Estimates and judgements are continually evaluated and are based on historical experiences and otherfactors, including expectations of future events that are believed to be reasonable under thecircumstances.
The company makes estimates and assumptions concerning the future. The resulting accountingestimates will, by definition, seldom equal the related actual results. The estimates and assumptionsthat have a significant risk of causing a material adjustment to the carrying amounts of assets andliabilities within the next financial year are detailed below.
Revenue recognition
Judgements are required as to whether and when contractual obligations have been fulfilled and in turnthe period over which systems rental revenue should be recognised.
Brexit
The company is aware of the political uncertainty which remains following the referendum held in2016 where the UK voted to leave the European Union. This is being closely monitored by thecompany but is not expected to have a significant impact on the financial information for the yearended 31 March 2020.
93
4. Revenue
The company’s revenue primarily arises from the manufacture and supply of underwatercommunication and other marine goods. Geographical analysis of the company’s revenue is shownbelow. The geographical analysis is based on the location of the customer.
Year ended31 December
2016
Year ended31 December
2017
15 monthperiod ended
31 March2019
£ £ £
United Kingdom 275,585 331,429 490,550Europe (excluding UK) 17,915 34,237 40,572North America 134,898 230,935 341,972Middle East 88,476 139,726 204,691Rest of the World 3,416 10,485 6,290
520,290 746,812 1,084,075
5. Employees and directors
(a) Staff costs for the company during the period including executive directors:
Key management personnel include all directors, who have authority and responsibility for planning,directing, and controlling the activities of the company.
6. Operating Profit
Operating profit is stated after charging/(crediting):
Year ended31 December
2016
Year ended31 December
2017
15 monthperiod ended
31 March2019
£ £ £
Depreciation of property, plant and equipment 10,767 16,384 10,109Gain on disposal of property, plant and equipment (2,500) (724) —Net foreign exchange losses/(gains) — 6,196 (4,732)Bad debt write-off — — 326Operating lease costs 19,689 12,841 15,114
7. Finance income and finance costs
Year ended31 December
2016
Year ended31 December
2017
15 monthperiod ended
31 March2019
£ £ £
Interest charged on directors’ loans 529 126 1,502
UK tax for the current financial period 19,228 39,188 78,491Adjustments in respect of previous periods — 401,868 —
Total UK tax charge 19,228 441,056 78,491
Tax charge per statement of comprehensiveincome 19,228 441,056 78,491
The corporation tax charge for the year ended 31 December 2017 includes £401,868 in respect ofprior periods owing due to the disallowance of loss relief claimed in connection with investment madeby the company.
The tax charge differs from the standard rate of corporation tax in the UK of 19% for the periodended 31 March 2019, 19.25% for the year ended 31 December 2017, and 20% for the year ended 31December 2016. The differences are explained below:
Year ended31 December
2016
Year ended31 December
2017
15 monthperiod ended
31 March2019
£ £ £
Profit on ordinary activities before tax 94,677 200,812 412,204
Tax using the company’s domestic tax rates 18,935 38,656 78,319Effects of:Expenses not deductible 4,137 387 2,957Adjustments in respect of previous years — 401,868 —Fixed assets differences (3,844) 145 (2,785)
Total taxation charge 19,228 441,056 78,491
A reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) wassubstantively enacted on 26 October 2015, and an additional reduction to 17% (effective from 1 April2020) was substantively enacted on 6 September 2016. This will reduce the company’s future currenttax charge accordingly. No further rate changes have been noted within the Finance Act 2019, whichreceived Royal Assent in February 2019.
9. Dividends
Year ended31 December
2016
Year ended31 December
2017
15 monthperiod ended
31 March2019
£ £ £
Dividend on Ordinary shares of £1 each 98,742 120,366 75,906
The above dividends were paid in respect of the year ended 31 March 2019 at the rate of £759.06 perordinary share (2017: £1,203.66 per ordinary share; 2016: £987.42 per ordinary share).
At 31 December 2017 5,672 125,838 22,864 60,345 6,620 221,339
DEPRECIATIONAt 1 January 2017 2,592 118,121 22,864 42,912 5,979 192,468Charge for year 227 1,639 — 14,307 211 16,384Eliminated on disposal — — — (14,124) — (14,124)
At 31 December 2017 2,819 119,760 22,864 43,095 6,190 194,728
NET BOOK VALUEAt 31 December 2017 2,853 6,078 — 17,250 430 26,611
At 1 January 2017 3,080 317 — 23,933 — 27,330
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Improve-ments toproperty
Plant andmachinery
Fixtures andfittings
Motorvehicles
Computerequipment Totals
£ £ £ £ £ £
COSTAt 1 January 2018 5,672 125,838 22,864 60,345 6,620 221,339Additions — — — 8,750 607 9,357
At 31 March 2019 5,672 125,838 22,864 69,095 7,227 230,696
DEPRECIATIONAt 1 January 2018 2,819 119,760 22,864 43,095 6,190 194,728Charge for period 283 1,639 — 7,751 436 10,109
At 31 March 2019 3,102 121,399 22,864 50,846 6,626 204,837
NET BOOK VALUEAt 31 March 2019 2,570 4,439 — 18,249 601 25,859
At 1 January 2018 2,853 6,078 — 17,250 430 26,611
11. Trade and other receivables
As at31 December
2016
As at31 December
2017
As at31 March
2019£ £ £
Amounts falling due within one year:Trade receivables 74,718 146,591 181,237Directors’ current accounts (note 19) — — 100,124Prepayments 11,471 6,230 7,617Other receivables — 668 400
86,189 153,489 289,378
Trade receivables are non-interest bearing and are generally due and paid within 30 days. TheDirectors consider that the carrying amount of trade and other receivables approximates to their fairvalue and that no impairment is required at the reporting date. Trade and other receivables representfinancial assets and are amortised for impairment on an expected credit loss model. Therefore, there isno provision for impairment at 31 March 2019 (31 December 2017: £nil; 31 December 2016; £nil).
Fair values of trade receivables
Due to the short-term nature of the current receivables, their carrying amount is considered to be thesame as their fair value.
Impairment and risk exposure
Information about the impairment of trade receivables and the company’s exposure to credit risk,foreign currency risk and interest rate risk can be found in note 18.
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12. Inventories
As at31 December
2016
As at31 December
2017
As at31 March
2019£ £ £
Tools 32,500 37,200 40,200
32,500 37,200 40,200
13. Cash and cash equivalents
As at31 December
2016
As at31 December
2017
As at31 March
2019£ £ £
Cash at bank and in hand 374,405 79,100 183,184
374,405 79,100 183,184
All bank balances are denominated in Sterling.
14. Trade and other payables
As at31 December
2016
As at31 December
2017
As at31 March
2019£ £ £
Amounts falling due within one year:Trade payables 32,920 73,171 61,205Corporation tax liability 15,384 120,779 114,804Other taxation 5,704 — 3,411Other payables 5,191 3,227 2,375Directors’ current accounts 204 204 —Accrued expenses 3,392 2,000 2,000
62,795 199,381 183,795
Trade and other payables comprise amounts outstanding for trade purchases and on-going costs. Alltrade and other payables are due in less than one year. All balances are denominated in Sterling.Directors’ current accounts as at 31 December 2016 and 31 December 2017 include the loan fromMr D A Bowler of £204.
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15. Share capital
As at31 December
2016
As at31 December
2017
As at31 March
2019£ £ £
Allotted, called up and fully paidOrdinary shares of £1.00 each 100 100 100
100 100 100
Voting rights
The holders of ordinary shares are entitled to one voting right per share.
Dividends
The holders of ordinary shares are entitled to dividends out of the profits of the company available fordistribution.
16. Commitments and contingences
(a) Capital commitments
There were no capital commitments at 31 December 2016, 31 December 2017 and 31 March2019.
(b) Operating lease commitments
The future aggregate minimum lease payments under non-cancellable operating leases are asfollows:
As at31 December
2016
As at31 December
2017
As at31 March
2019£ £ £
Within 1 year 775 — —Later than 1 year and less than 5 years — — —After 5 years — — —
775 — —
The operating lease commitments for the rental of the property and equipment is calculated on astraight-line basis over the respective lengths of the leases.
17. Financial Instruments – classification and measurement
Financial assets
Financial assets measured at amortised cost comprise receivables and cash, as follows:
As at31 December
2016
As at31 December
2017
As at31 March
2019£ £ £
Receivables (note 11) 74,718 147,259 281,761Cash at bank and in hand 374,405 79,100 183,184
449,123 226,359 464,945
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Financial liabilities
Financial liabilities measured at amortised cost comprise other payables and accruals, as follows:
The company’s activities expose it to a variety of financial risks: interest rate risk, liquidity risk,market risk, currency risk and credit risk. Risk management is carried out by the board of directors.The company uses financial instruments to provide flexibility regarding its working capitalrequirements and to enable it to manage specific financial risks to which it is exposed.
The company finances its operations through a mixture of equity finance, cash and liquid resourcesand various items such as trade receivables and trade payables which arise directly from thecompany’s operations.
(a) Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows associated with the instrumentwill fluctuate due to changes in market interest rates. Interest bearing assets including cash andcash equivalents are considered to be short-term liquid assets. It is the company’s policy to settletrade payables within the credit terms allowed and the company does therefore not incur intereston overdue balances. No sensitivity analysis has been prepared as the impact on the historicalfinancial information would not be significant.
(b) Liquidity risk
Liquidity risk is the risk that the company will encounter difficulties in meeting obligationsassociated with financial liabilities. Liquidity risk arises from the repayment demands of thecompany’s lenders. The cash requirements of the company are forecast by the board annually.The company is not dependent on any external borrowings.
The following tables set out the maturity profile of the company’s non-derivative financialliabilities, based on undiscounted contractual cash outflows, as at the following dates:
31 December2016
31 December2017
31 March2019
£ £ £
Trade and other payablesLess than 2 months 38,315 76,602 63,5802-3 months — — —3 months – 1 year — — —1-5 years — — —
Total 38,315 76,602 63,580
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(c) Capital risk management
The company reviews its forecast capital requirements on an annual basis to ensure that it willbe able to continue as a going concern while maximising the return to stakeholders. The capitalstructure of the company consists of equity, comprising issued share capital, and retainedearnings as disclosed in the Statement of changes in equity. Total equity was £354,826 at31 March 2019 (£97,019 at 31 December 2017, and £457,629 at 31 December 2016).
The company is not subject to externally imposed capital requirements.
(d) Credit risk management
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge anobligation or commitment that it has entered into with the company and the risk that any debtorsof the company may default on amounts due to the company. The company’s principal financialassets are trade receivables, other debtors, and cash equivalents.
The company has a policy of only dealing with credit worthy counterparties. All tradereceivables are ultimately overseen by the director responsible for finance and are managed on aday-to-day basis by the finance team. Credit limits are set as deemed appropriate for thecustomer. The company had £181,237 of trade receivables at 31 March 2019 (31 December2017: £146,591, 31 December 2016: £74,718). The company’s exposure to credit risk isinfluenced mainly by the individual characteristics of each customer or counterparty. However,management also considers the factors that may influence the credit risk of its customer orcounterparty base, including the default risk associated with the industry and country in whichthe customer or counterparty operates. The maximum exposure to credit risk in relation to cashand cash equivalents is the carrying value at the balance sheet date.
(e) Currency risk
The company’s exposure to any currency risk at present is minimal.
(f) Offsetting financial assets and financial liabilities
The company has not presented any of its financial assets and financial liabilities on a net basisand no master netting arrangements are in place.
19. Related party transactions
During the period ended 31 March 2019, the company provided a loan to one of its directors Mr D ABowler totalling £101,124 (2017: £nil; 2016: £nil). £1,236 of interest was charged on that loan duringthe period ended 31 March 2019 (2017: £nil; 2016: £nil).
Included within trade and other payables as at 31 December 2017 and 31 December 2016 was a loanfrom one of its directors (Mr D A Bowler) of £204. No interest was charged on this balance. Theloan was repaid during the period ended 31 March 2019.
20. Ultimate controlling party
Prior to 26 April 2019, the company’s ultimate controlling party was D A Bowler, its director andmajor shareholder. From 26 April 2019 the ultimate controlling party was OTAQ GL. See Note 21 –Subsequent events, for further details.
21. Subsequent events
On 26 April 2019, OTAQ GL, a company incorporated and registered in England, bought all sharesand rights that previous owners held in the company and became the ultimate controlling party of thecompany.
On 6 February 2020, the name of the company was changed from Link Subsea Limited to OTAQConnectors Limited.
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SECTION E – ACCOUNTANT’S REPORT ON THE HISTORICAL FINANCIALINFORMATION OF OTAQ OFFSHORE
The following is the full text of a report on OTAQ Offshore from RSM Corporate Finance LLP, theReporting Accountants, to the Directors of the Company.
The DirectorsHertsford Capital plcc/o Fladgate LLP16 Great Queen StreetLondonWC2B 5DG
24 March 2020
Dear Sirs,
OTAQ Offshore Limited
We report on the historical financial information of OTAQ Offshore Limited (“OTAQ Offshore”) set out inSection F of Part 9 of the prospectus dated 24 March 2020 (“Prospectus”) of Hertsford Capital plc (the“Company”). This historical financial information has been prepared for inclusion in the Prospectus on thebasis of the accounting policies set out at Note 2 to the historical financial information. In this letter,“Prospectus Regulation Rules” means the rules known as such as issued by the FCA under Part VI ofFSMA and as amended, consolidated, re-enacted, or replaced from time to time implementing andincorporating inter alia the Prospectus Regulation (Regulation (EU) 2017/1129 of the European Parliament)and the Prospectus Supplementary Regulation (Commission Delegated Regulation (EU) 2019/980). Thisreport is required by Rule 18 of Annex 1 of the Prospectus Regulation Rules and is given for the purposeof complying with that paragraph and for no other purpose.
Responsibilities
The directors of the Company (the “Directors”) are responsible for preparing the historical financialinformation in accordance with International Financial Reporting Standards as adopted by the EuropeanUnion.
It is our responsibility to form an opinion on the historical financial information and to report our opinionto you.
Save for any responsibility arising under Prospectus Regulation Rule 5.3.2R(2)(f) to any person as and tothe extent there provided, to the fullest extent permitted by law, we do not accept or assume responsibilityand will not accept any liability to any other person for any loss suffered by any such other person as aresult of, arising out of, or in connection with this report or our statement, required by and given solely forthe purposes of complying with Rule 1.3 of Annex 1 of the Prospectus Regulation Rules, or consenting toits inclusion in the Prospectus.
Basis for qualified opinion
The audit evidence available to us with respect to inventory balances at 31 January 2017, 31 March 2018and 31 March 2019 was limited due to the circumstances described below:
103
For the year ended 31 January 2017
With respect to inventory having a carrying value of £65,960, the audit evidence available to us was limitedbecause the financial statements for the year ended 31 January 2017 were unaudited and therefore there wasno auditor attendance at the counting of physical inventories at 31 January 2017 or at the opening balancesheet date. Owing to the nature of the company’s records, we were unable to obtain sufficient appropriateaudit evidence regarding the inventory quantities and values by using other audit procedures. Consequently,we were unable to determine whether any adjustments to inventory as at 31 January 2017 were necessaryand therefore also to cost of sales for the year ended 31 January 2017.
For the period ended 31 March 2018
With respect to inventory having a carrying value of £158,637, the audit evidence available to us waslimited because the financial statements for the period ended 31 March 2018 were unaudited and thereforethere was no auditor attendance at the counting of physical inventories at 31 March 2018 or at the openingbalance sheet date. Owing to the nature of the company’s records, we were unable to obtain sufficientappropriate audit evidence regarding the inventory quantities and values by using other audit procedures.Consequently, we were unable to determine whether any adjustments to inventory as at 31 March 2018were necessary and therefore also to cost of sales for the period ended 31 March 2018.
For the year ended 31 March 2019
With respect to opening inventory having a carrying value of £213,601, the audit evidence available to uswas limited because the company did not appoint an auditor until after the beginning of the accountingperiod and therefore, as noted above, there was no auditor attendance at the counting of physical inventoriesat 31 March 2018. Owing to the nature of the company’s records, we were unable to obtain sufficientappropriate audit evidence regarding the inventory quantities and values by using other audit procedures.Consequently, we were unable to determine whether any adjustments to opening inventory were necessaryand therefore also to cost of sales for the year ended 31 March 2019.
We conducted our work in accordance with Standards for Investment Reporting issued by the FinancialReporting Council in the United Kingdom. Our work included an assessment of evidence relevant to theamounts and disclosures in the historical financial information. It also included an assessment of significantestimates and judgments made by those responsible for the preparation of the historical financial informationand whether the accounting policies are appropriate to the entity’s circumstances, consistently applied andadequately disclosed.
We planned our work so as to obtain all the information and explanations we considered necessary in orderto provide us with sufficient evidence to give reasonable assurance that the historical financial information isfree from material misstatement whether caused by fraud or other irregularity or error. We believe that theaudit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.
Qualified opinion
In our opinion, except for the possible effects of the matter described in the basis for qualified opinionsection of our report, the historical financial information gives, for the purposes of the Prospectus, a trueand fair view of the state of affairs of OTAQ Offshore as at the dates stated and of its results, cash flowsand changes in equity for the periods then ended in accordance with International Financial ReportingStandards as adopted by the European Union.
Declaration
For the purposes of Prospectus Regulation Rule 5.3.2R(2)(f) we are responsible for this report as part of theProspectus and declare that, to the best of our knowledge, the information contained in this report is inaccordance with the facts and that this report makes no omission likely to affect its import. This declarationis included in the Prospectus in compliance with Rule 1.2 of Annex 1 of the Prospectus RegulationRules and Rule 1.2 of Annex 11 of the Prospectus Regulation Rules.
Yours faithfully
RSM Corporate Finance LLP
Regulated by the Institute of Chartered Accountants in England and Wales
RSM Corporate Finance LLP is a limited liability partnership registered in England and Wales, registered no. OC325347.A list of the names of members is open to inspection at the registered office 25 Farringdon Street London EC4A 4AB
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SECTION F: HISTORICAL FINANCIAL INFORMATION OF OTAQ OFFSHOREFOR THE THREE PERIODS ENDED 31 JANUARY 2017, 31 MARCH 2018
AND 31 MARCH 2019
OTAQ OFFSHORESTATEMENT OF COMPREHENSIVE INCOME
Note
Year ended31 January
2017
14-monthperiod ended
31 March2018
Year ended31 March
2019£ £ £
Revenue 4 378,735 459,199 480,319Cost of sales (77,189) (160,824) (220,310)
Profit before taxation 168,854 135,789 132,720Taxation 8 (36,695) 74,185 (18,642)
Profit and total comprehensive incomefor the period attributable to the equityowners of the company 132,159 209,974 114,078
The above results were derived from continuing operations.
105
OTAQ OFFSHORE
STATEMENT OF FINANCIAL POSITION AS AT 31 JANUARY 2017, 31 MARCH 2018 AND 31MARCH 2019
Note
As at31 January
2017
As at31 March
2018
As at31 March
2019£ £ £
ASSETSNon-current assetsProperty, plant and equipment 10 105,898 84,557 30,220
Current assetsTrade and other receivables 11 169,052 164,748 80,046Inventories 12 65,960 158,637 213,601Cash and cash equivalents 13 101,277 31,905 94,633
Total current assets 336,289 355,290 388,280
Total assets 442,187 439,847 418,500
EQUITY AND LIABILITIESEquityShare capital 16 100 100 100Retained earnings 369,813 422,009 362,087
Total equity attributable to the equityowners of the company 369,913 422,109 362,187
Current liabilitiesTrade and other payables 14 72,274 17,738 54,627
Total current liabilities 72,274 17,738 54,627
Non-current liabilitiesDeferred income tax liability 15 — — 1,686
Total non-current liabilities — — 1,686
Total equity and liabilities 442,187 439,847 418,500
106
OTAQ OFFSHORE
STATEMENT OF CHANGES IN EQUITY FOR THE THREE PERIODS ENDED 31 JANUARY 2017,31 MARCH 2018 AND 31 MARCH 2019
Note Share capitalRetainedearnings Total
£ £ £
Balance at 1 February 2016 100 337,654 337,754Comprehensive IncomeProfit and total comprehensive income forthe year — 132,159 132,159Transactions with ownersDividends paid 9 — (100,000) (100,000)
Balance at 31 January 2017 100 369,813 369,913
Comprehensive IncomeProfit and total comprehensive income forthe period — 209,974 209,974Transactions with ownersDividends paid 9 — (157,778) (157,778)
Balance at 31 March 2018 100 422,009 422,109
Comprehensive IncomeProfit and total comprehensive income forthe year — 114,078 114,078Transactions with ownersDividends paid 9 — (174,000) (174,000)
Balance at 31 March 2019 100 362,087 362,187
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OTAQ OFFSHORE
STATEMENT OF CASH FLOWS
FOR THE THREE PERIODS ENDED 31 JANUARY 2017, 31 MARCH 2018 AND 31 MARCH 2019
Note
Year ended31 January
2017
14-monthperiod ended
31 March2018
Year ended31 March
2019£ £ £
Cash flows from operating activitiesProfit before taxation 168,854 135,789 132,720Adjustments for non-cash/non-operatingitems:Loss on sale of property, plant andequipment — — 18Finance income 7 (20) (535) —Finance expense 7 — — 68Depreciation of tangible assets 84,882 100,723 54,319
253,716 235,977 187,125Changes in working capital:(Increase)/decrease in trade and otherreceivables (17,128) 8,703 84,702Increase in inventories (2,150) (92,677) (54,964)Increase/(decrease) in trade and otherpayables 15,851 (10,828) 19,933
Cash from operations 252,489 141,175 236,796Tax received 798 26,078 —
Net cash from operating activities 253,287 167,253 236,796
Cash flows from investing activitiesPurchases of tangible fixed assets (90,306) (79,382) —Interest received 20 535 —
Net cash used in investing activities (90,286) (78,847) —
Net cash used in financing activities (100,000) (157,778) (174,068)
Net increase/(decrease) in cash and cashequivalents 63,001 (69,372) 62,728Cash and cash equivalents at beginning ofperiod 38,276 101,277 31,905
Cash and cash equivalents at end ofperiod 13 101,277 31,905 94,633
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OTAQ OFFSHORE
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
1. General Information
OTAQ Offshore (formerly Marinesense Limited) is a private company limited by shares incorporatedin Scotland. The company is domiciled in Scotland and its registered office is Suites 5a, 5b & 5cCrombie Lodge Aberdeen Innovation Park, Campus Two, Bridge of Don, Aberdeen,Scotland, AB22 8GU.
The principal activity of the company is that of the development and rental of components for theoffshore industry.
The principal accounting policies adopted by the company are set out in note 2.
2. Accounting policies
(a) Basis of preparation
The historical financial information presents the financial track record of OTAQ Offshore for theyear ended 31 January 2017, a period of 14-months ended 31 March 2018, and a year ended31 March 2019. This financial information has been prepared in accordance with InternationalFinancial Reporting Standards and interpretations issued by the International Financial ReportingInterpretations Committee (“IFRIC”) interpretations as adopted by the European Union (“IFRS”).
This historical financial information is prepared in accordance with IFRS under the historical costconvention, as modified by the use of fair value for financial instruments measured at fair value.The historical financial information is presented in pounds sterling (£) except where otherwiseindicated.
The principal accounting policies adopted in the preparation of the historical financialinformation are set out below. The policies have been consistently applied to all the periodspresented, unless otherwise stated.
(b) Going concern
At 31 March 2019, the Existing OTAQ Group (of which OTAQ Offshore is a wholly ownedsubsidiary) had net assets of approximately £2.3 million and cash of approximately £368,000.These amounts improved to approximately £3.3 million and £1.1 million as at 30 September2019, the date of the unaudited interims contained in Part 11. The Directors have reviewed theEnlarged Group’s projected cash flows for a period of at least twelve months from the date ofthis document which demonstrate that, dependant on successful completion of the Acquisition,the Placing and the Re-admission, the Enlarged Group can meet its liabilities as they fall due.As such this considered historical financial information has been prepared on a going concernbasis.
(c) New standards, amendments and interpretations
None of the standards, interpretations and amendments effective for the first time from 1 January2018, including IFRS 9 and IFRS 15, which have been adopted from the conversion date of1 February 2016, have had a material effect on the historical financial information.
IFRS 9
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition andMeasurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects ofthe accounting for financial instruments: classification and measurement, impairment and hedgeaccounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, withearly application permitted. The company has retrospectively applied IFRS 9.
(i) Impairment
IFRS 9 requires the company to record expected credit losses (ECLs) on its debt securities,loans and amounts due from settlement the of both investments and trade receivables,either on a 12-month or lifetime basis. The company has determined there is no materialimpact of ECLs on the historical financial information.
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(ii) Hedge accounting
The company has not applied hedge accounting.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for determining whether, how much and whenrevenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue,IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The core principle isthat an entity should recognise revenue to depict the transfer of promised goods and services tocustomers in an amount that reflects the consideration to which the entity is expected to be entitled to,in exchange for those goods or services.
Implementation of IFRS 15 had no significant impact on retained earnings at 1 February 2016 thestatement of financial position as at January 2017, 31 March 2018 and 31 March 2019, or the incomestatement for the periods ended 31 January 2017, 31 March 2018 and 31 March 2019.
The following standards have not been applied in preparing the historical financial information:
IFRS 16 Leases
This is effective for year ended 31 March 2020. The company is assessing the impact of IFRS 16which, based upon leases presently held by the company, is likely to increase EBITDA and netinterest charges by similar amounts with an immaterial effect on profit before taxation. The amounts tobe included under the standard into fixed assets and net debt respectively will be more definitivelyassessed nearer the time and are dependent upon lease agreements that will be in existence at thatpoint.
(d) Segmental reporting
The company operates in one single business segment which is wholly undertaken within theUK, as set out in note 4. This is consistent with the internal reporting provided to the chiefoperating decision-maker. The chief operating decision-maker, who is responsible for allocatingresources and assessing performance, has been identified as the management team comprising theexecutive directors who make strategic decisions.
(e) Revenue recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to thecompany and the revenue can be reliably measured. Revenue is measured at the fair value of theconsideration received or receivable for the sale of goods or services, excluding discounts,rebates, VAT and other sales taxes or duties. Revenue under service contracts is recognised on astraight-line basis over the period of the contract. Deposits received in advance are deferred andrecognised at the end of the contract when applicable.
(f) Net finance costs
Finance costs
Finance costs comprise interest payable and are expensed in the period in which they areincurred.
Finance income
Finance income comprises interest receivable on bank deposits. Interest income is recognised inprofit or loss as it accrues using the effective interest method.
(g) Employee benefits: Pension obligations
The company operates a defined contribution pension scheme. The assets of the scheme are heldseparately from those of the company in an independently administered fund. The amountscharged to profit or loss represent the contributions payable to the scheme in respect of theaccounting period.
(h) Financial assets
Classification
The company classifies all of its financial assets as receivables and cash. Management determinesthe classification of its financial assets at initial recognition.
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Receivables
Trade receivables, which generally have 30-day terms, are recognised and carried at the lower oftheir original invoiced value and recoverable amount. The time value of money is not material.Significant financial difficulties faced by the customer, probability that the customer will enterbankruptcy or financial reorganisation and default in payments are considered indicators that thetrade receivable is impaired. The amount of the provision is the difference between the asset’scarrying amount and the present value of estimated future cash flows, discounted at the originaleffective interest rate. The carrying value of the asset is reduced through the use of an allowanceaccount, and the amount of the loss is recognised in the statement of comprehensive incomewithin administrative expenses. When a trade receivable is uncollectable, it is written off againstthe allowance account for trade receivables.
Due to the short-term nature of current receivables, their carrying amount is considered to be thesame as their fair value determined using level 3 inputs. Trade and other receivables representfinancial assets and are considered for impairment on an expected credit loss model.
Cash and cash equivalents
Cash and cash equivalents comprise cash at hand and deposits with maturities of three months orless.
Impairment of financial assets
Impairment provisions are recognised when there is objective evidence (such as significantfinancial difficulties on the part of the counterparty or default or significant delay in payment)that the company will be unable to collect all of the amounts due under the terms receivable, theamount of such a provision being the difference between the net carrying amount and thepresent value of the future expected cash flows associated with the impaired asset.
(i) Trade and other payables
Trade and other payables are initially recognised at fair value and subsequently measured atamortised cost using the effective interest rate method. Accounts payable are classified as currentliabilities if payment is due within one year or less. If not, they are presented as non-currentliabilities.
(j) Share capital
Proceeds on issue of shares are included in shareholders’ equity, net of transaction costs. Thecarrying amount is not re-measured in subsequent years.
(k) Research and development
Costs associated with maintaining leak detection system, laser measurement systems andunderwater cameras are recognised as an expense as incurred.
Development costs that are directly attributable to the design and testing of the above productscontrolled by the company are recognised as intangible assets where the following criteria aremet:
* it is technically feasible to complete the product so that it will be available for use;
* management intends to complete the product and use or sell it;
* there is an ability to use or sell the product;
* it can be demonstrated how the product will generate probable future economic benefits;
adequate technical, financial and other resources to complete the development and to use or sell
* the product is available; and
* the expenditure attributable to the product during its development can be reliably measured.
Research expenditure and development expenditure that do not meet the criteria listed above arerecognised as an expense as incurred. Development costs previously recognised as an expenseare not recognised as an asset in a subsequent period.
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(l) Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by thelessor are classified as operating leases. The costs associated with operating leases are taken tothe statement of comprehensive income on an accruals basis over the period of the lease.
All other leases are classified as operating leases.
(m) Property, plant and equipment
Property, plant and equipment assets are recognised initially at cost. After initial recognition,these assets are carried at cost less any accumulated depreciation and any accumulatedimpairment losses.
Cost comprises the aggregate amount paid and the fair value of any other consideration given toacquire the asset and includes costs directly attributable to making the asset capable of operatingas intended.
Depreciation is computed by allocating the depreciable amount of an asset on a systematic basisover its useful life and is applied separately to each identifiable component.
The following bases and rates are used to depreciate classes of assets:
Rental systems — 33% on cost
Motor vehicles — 25% on cost
Computer equipment — 33% on cost
The carrying values of property, plant and equipment are reviewed for impairment if events orchanges in circumstances indicate that the carrying value may not be recoverable, and are writtendown immediately to their recoverable amount. Useful lives and residual values are reviewedannually and where adjustments are required these are made prospectively.
A property, plant and equipment item is de-recognised on disposal or when no future economicbenefits are expected to arise from the continued use of the asset. Any gain or loss arising onthe de-recognition of the asset is included in the Statement of comprehensive income in theperiod of de-recognition.
(n) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost based on latestcontractual prices includes all costs incurred in bringing each product to its present location andcondition. Net realisable value is based on estimated selling price less any further costs expectedto be incurred to disposal. Provision is made for slow-moving or obsolete items.
(o) Income tax
Income tax for the periods presented comprises current and deferred tax. Income tax isrecognised in profit or loss except to the extent that it relates to items recognised directly inequity, in which case it is recognised in equity.
Deferred income tax is recognised on temporary differences arsing between the tax bases ofassets and liabilities and their carrying amounts. The amount of deferred tax provided is basedon the expected manner of realisation or settlement of the carrying amount of assets andliabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred income tax asset is recognised only to the extent that it is probable that futuretaxable profits will be available against which the asset can be utilised. Deferred tax assets arereduced to the extent that it is no longer probable that the related tax benefit will be realised.Deferred income tax assets and liabilities are offset when there is a legally enforceable right tooffset current tax assets against current tax liabilities and when the deferred income taxes assetsand liabilities relate to income taxes levied by the same taxation authority on either the taxableentity or different taxable entities where there is an intention to settle the balances on a netbasis.
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3. Significant accounting estimates and judgements
The preparation of the company’s historical financial information under IFRS requires the Directors tomake estimates and assumptions that affect the reported amounts of assets and liabilities at thestatement of financial position date, amounts reported for revenues and expenses during period, andthe disclosure of contingent liabilities, at the reporting date. However, uncertainty about theseassumptions and estimates could result in outcomes that could require a material adjustment to thecarrying amount of the assets or liabilities affected in the future.
Estimates and judgements are continually evaluated and are based on historical experiences and otherfactors, including expectations of future events that are believed to be reasonable under thecircumstances.
The company makes estimates and assumptions concerning the future. The resulting accountingestimates will, by definition, seldom equal the related actual results. The estimates and assumptionsthat have a significant risk of causing a material adjustment to the carrying amounts of assets andliabilities within the next financial year are detailed below.
Revenue recognition
Judgements are required as to whether and when contractual obligations have been fulfilled and in turnthe period over which systems’ rental revenue should be recognised.
Brexit
The company is aware of the political uncertainty which remains following the referendum held in2016 where the UK voted to leave the European Union. This is being closely monitored by thecompany but is not expected to have a significant impact on the financial statements for the yearended 31 March 2020.
4. Revenue
All company’s revenue arises from the development and rental of components for the offshore industryin the UK North Sea.
5. Employees and directors
(a) Staff costs for the company during the year including executive directors:
Key management personnel include all directors, who have authority and responsibility forplanning, directing, and controlling the activities of the company.
6. Operating Profit
Operating profit is stated after charging:
Year ended31 January
2017
14-monthperiod ended
31 March2018
Year ended31 March
2019£ £ £
Depreciation of property, plant and equipment 84,882 100,723 54,319Research expenditure 103,767 201,781 187,673Bad debts write-off 1,392 — —Loss on disposal of property, plant and equipment — — 18Operating lease costs 25,584 28,114 26,516
7. Finance income and finance costs
Year ended31 January
2017
14-monthperiod ended
31 March2018
Year ended31 March
2019£ £ £
Interest on bank deposits 20 38 —Interest on corporate tax — 497 —Interest expense — — (68)
Net finance income/(costs) 20 535 (68)
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8. Taxation
Year ended31 January
2017
14-monthperiod ended
31 March2018
Year ended31 March
2019£ £ £
UK tax for the current financial period — — —Adjustments in respect of previous periods 36,695 (74,185) 16,956
Total UK tax charge/(credit) 36,695 (74,185) 16,956
Deferred tax (note 15) — — 1,686Tax charge per statement of comprehensiveincome 36,695 (74,185) 18,642
The tax charge for the period differs from the standard rate of corporation tax in the UK of 19% forthe year ended 31 March 2019, 19.14% for the period ended 31 March 2018, and 20% for the yearended 31 January 2017. The differences are explained below:
Year ended31 January
2017
14-monthperiod ended
31 March2018
Year ended31 March
2019£ £ £
Profit on ordinary activities before tax 168,854 135,789 132,719
Tax using the company’s domestic tax rates 33,771 25,994 25,217Effects of:Effect of concessions (research and development andcapital allowances) (46,352) (59,263) (817)Fixed assets differences — — 1,686Effect of unused tax losses not recognised as deferredtax assets — 15,782 —Expenses not deductible 16,999 17,487 11,378Prior year losses utilised (4,418) — (18,822)Adjustments recognised in the current year in relationto the current tax of prior years 36,695 (74,185) —
Total taxation charge/(credit) 36,695 (74,185) 18,642
A reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) wassubstantively enacted on 26 October 2015, and an additional reduction to 17% (effective from 1 April2020) was substantively enacted on 6 September 2016. This will reduce the company’s future currenttax charge accordingly. No further rate changes have been noted within the Finance Act 2019, whichreceived Royal Assent in February 2019.
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9. Dividends
Year ended31 January
2017
14-monthperiod ended
31 March2018
Year ended31 March
2019£ £ £
Dividend on Ordinary shares of £1 each 100,000 157,778 174,000
The above dividend was paid in respect of the year ended 31 March 2019 at the rate of £1,740 perordinary share (31 March 2018: £1,578 per ordinary share; 31 January 2017: £1,000 per ordinaryshare).
10. Property, plant and equipment
Motorvehicles
Computerequipment
Rentalsystems Total
£ £ £ £
CostBalance at 1 February 2016 34,375 59,382 473,000 566,757Additions — 9,306 81,000 90,306Disposals — — — —
Balance at 31 January 2017 34,375 68,688 554,000 657,063Balance at 1 February 2017 34,375 68,688 554,000 657,063Additions — 5,382 74,000 79,382Disposals — — — —
Balance at 31 March 2018 34,375 74,070 628,000 736,445Balance at 1 April 2018 34,375 74,070 628,000 736,445Additions — — — —Disposals — (38,387) — (38,387)
Balance at 31 March 2019 34,375 35,683 628,000 698,058
Accumulated DepreciationBalance at 1 February 2016 (15,039) (62,248) (388,996) (466,283)Depreciation charge (4,834) (3,049) (76,999) (84,882)Disposals — — — —
Balance at 31 January 2017 (19,873) (65,297) (465,995) (551,165)Balance at 1 February 2017 (19,873) (65,297) (465,995) (551,165)Depreciation charge (4,230) (4,509) (91,984) (100,723)Disposals — — — —
Balance at 31 March 2018 (24,103) (69,806) (557,979) (651,888)Balance at 1 April 2018 (24,103) (69,806) (557,979) (651,888)Depreciation charge (4,577) (3,010) (46,731) (54,318)Disposals — 38,368 — 38,368
Balance at 31 March 2019 (28,680) (34,448) (604,710) (667,838)
Net Book ValueAt 31 January 2017 14,502 3,391 88,005 105,898At 31 March 2018 10,272 4,264 70,021 84,557At 31 March 2019 5,695 1,235 23,290 30,220
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11. Trade and other receivables
As at31 January
2017
As at31 March
2018
As at31 March
2019£ £ £
Amounts falling due within one year:Trade receivables 86,920 65,617 72,222Directors’ current accounts (note 20) 80,000 90,000 —Corporation tax liability — 4,399 4,399Prepayments 2,132 2,132 3,425Other receivables — 2,600 —
169,052 164,748 80,046
Trade receivables are non-interest bearing and are generally due and paid with 30 days. The Directorsconsider that the carrying amount of trade and other receivables approximates to their fair value andthat no impairment is required at the reporting date. Trade and other receivables represent financialassets and are amortised for impairment on an expected credit loss model. Therefore there is noprovision for impairment at 31 March 2019 (31 March 2018: £nil; 31 January 2017; £nil).
Fair values of trade receivables
Due to the short-term nature of the current receivables, their carrying amount is considered to be thesame as their fair value.
Impairment and risk exposure
Information about the impairment of trade receivables and the company’s exposure to credit risk,foreign currency risk and interest rate risk can be found in note 18.
12. Inventories
As at31 January
2017
As at31 March
2018
As at31 March
2019£ £ £
Components and prototypes 65,960 158,637 213,601
65,960 158,637 213,601
13. Cash and cash equivalents
As at31 January
2017
As at31 March
2018
As at31 March
2019£ £ £
Cash at bank and in hand 101,277 31,905 94,633
101,277 31,905 94,633
All bank balances are denominated in Sterling.
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14. Trade and other payables
As at31 January
2017
As at31 March
2018
As at31 March
2019£ £ £
Amounts falling due within one year:Trade payables 3,308 5,574 13,817Corporation tax liability 43,213 — 16,956Accruals — — 10,500Amounts owed to shareholders (note 19) 2,222 — —Other taxation 21,112 9,614 13,351Other payables 2,419 2,550 3
72,274 17,738 54,627
Trade and other payables comprise amounts outstanding for trade purchases and on-going costs. Alltrade and other payables are due in less than one year. All balances are denominated in Sterling.Amounts owed to shareholders as at 31 January 2017 include the balance of dividend due toshareholders at that time which were paid in the period ended 31 March 2018.
15. Deferred income tax liability
As at31 January
2017
As at31 March
2018
As at31 March
2019£ £ £
Temporary differences attributable to:Accelerated capital allowance — — 1,686
— — 1,686
16. Share capital
As at31 January
2017
As at31 March
2018
As at31 March
2019£ £ £
Allotted, called up and fully paidOrdinary shares of £1.00 each 100 100 100
100 100 100
Voting rights
The holders of ordinary shares are entitled to one voting right per share.
Dividends
The holders of ordinary shares are entitled to dividends out of the profits of the company available fordistribution.
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17. Commitments and contingences
(a) Capital commitments
There were no capital commitments at 31 January 2017, 31 March 2018 and 31 March 2019.
(b) Operating lease commitments
There were no operating lease commitments at 31 January 2017, 31 March 2018 and 31 March2019.
18. Financial instruments – classification and measurement
Financial assets
Financial assets measured at amortised cost comprise trade and other receivables, directors’ currentaccounts and cash, as follows:
As at31 January
2017
As at31 March
2018
As at31 March
2019£ £ £
Trade receivables 86,920 65,617 72,222Directors’ current accounts 80,000 90,000 —Other receivables — 2,600 —Cash at bank and in hand 101,277 31,905 94,633
268,197 190,122 166,855
Financial liabilities
Financial liabilities measured at amortised cost comprise trade payables and other payables as follows:
As at31 January
2017
As at31 March
2018
As at31 March
2019£ £ £
Trade payables 3,308 5,574 13,817Amounts owed to shareholders 2,222 — —Amounts due to employees 2,419 2,550 3
7,949 8,124 24,320
Financial risk management
The company’s activities expose it to a variety of financial risks: liquidity risk, interest rate risk,capital risk and credit risk. Risk management is carried out by the board of directors. The companyuses financial instruments to provide flexibility regarding its working capital requirements and toenable it to manage specific financial risks to which it is exposed.
The company finances its operations through a mixture of equity finance, cash and various items suchas trade receivables and trade payables which arise directly from the company’s operations.
(a) Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows associated with the instrumentwill fluctuate due to changes in market interest rates. Interest bearing assets including cash andcash equivalents are considered to be short-term liquid assets. It is the company’s policy to settletrade payables within the credit terms allowed and the company does therefore not incur intereston overdue balances. No sensitivity analysis has been prepared as the impact on the historicalfinancial information would not be significant.
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(b) Liquidity risk
Liquidity risk is the risk that the company will encounter difficulties in meeting obligationsassociated with financial liabilities. Liquidity risk arises from the repayment demands of thecompany’s lenders. The cash requirements of the company are forecast by the board annually.The company is not dependent on any external borrowings.
The following tables set out the maturity profile of the company’s non-derivative financialliabilities, based on undiscounted contractual cash outflows, as at the following dates:
As at31 January
2017
As at31 March
2018
As at31 March
2019£ £ £
Trade and other payablesLess than 2 months 7,949 8,124 13,8202-3 months — — —3 months – 1 year — — —1-5 years — — —
7,949 8,124 13,820
(c) Capital risk management
The company reviews its forecast capital requirements on an annual basis to ensure that thecompany will be able to continue as a going concern while maximising the return tostakeholders.
The capital structure of the company consists of equity, comprising issued share capital, andretained earnings as disclosed in the statement of changes in equity. Total equity was £362,187at 31 March 2019 (£422,109 at 31 March 2018 and £369,913 at 31 January 2017). Thecompany is not subject to externally imposed capital requirements.
(d) Credit risk management
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge anobligation or commitment that it has entered into with the company and the risk that any debtorsof the company may default on amounts due to the company. The company’s principal financialassets are trade receivables, other debtors, and cash equivalents.
The company has a policy of only dealing with credit worthy counterparties. All tradereceivables are ultimately overseen by the director responsible for finance and are managed on aday-to-day basis by the finance team. Credit limits are set as deemed appropriate for thecustomer. The company had £72,222 of trade receivables 31 March 2019 (31 March2018: £65,617 and 31 January 2017: £86,929). The company’s exposure to credit risk isinfluenced mainly by the individual characteristics of each customer or counterparty. However,management also considers the factors that may influence the credit risk of its customer orcounterparty base, including the default risk associated with the industry and country in whichthe customer or counterparty operates. The maximum exposure to credit risk in relation to cashand cash equivalents is the carrying value at the balance sheet date.
(e) Offsetting financial assets and financial liabilities
The company has not presented any of its financial assets and financial liabilities on a net basisand no master netting arrangements are in place.
19. Related party transactions
As at 31 March 2018, there were outstanding interest-free directors’ loans of £90,000 (31 January2017: £80,000) provided to H V Rotsch. These loans were fully repaid during the year ended31 March 2019.
As at 31 January 2017, there were outstanding dividends payable to A Fraser and A Jakas of £2,222.The dividends were fully paid in the period ended 31 March 2018.
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20. Ultimate controlling party
Prior to November 2018 the company’s ultimate controlling party was its director and majorshareholder H V Rotch. In November 2018, OTAQ GL, a company incorporated and registered inEngland, bought all shares and rights that previous owners held in the company and became theultimate controlling party of the company.
21. Subsequent events
On 7 February 2020, the name of the company was changed from Marinesense Limited to OTAQOffshore Limited.
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PART 10
PRO FORMA FINANCIAL INFORMATION
SECTION A: INDEPENDENT REASONABLE ASSURANCE REPORT ON THEUNAUDITED PRO FORMA FINANCIAL INFORMATION OF
THE ENLARGED GROUP
The following is the full text of a report on the Company from RSM Corporate Finance LLP, the ReportingAccountants, to the Directors of the Company.
The DirectorsHertsford Capital plcc/o Fladgate LLP16 Great Queen StreetLondonWC2B 5DG
24 March 2020
Dear Sirs,
Hertsford Capital plc (the “Company”)
We report on the unaudited pro forma financial information (the “Pro Forma Financial Information”) setout in Section B Part 10 of the prospectus dated 24 March 2020 (“Prospectus”) of Hertsford Capital plc(the “Company”), which has been prepared on the basis described in Section B, for illustrative purposesonly, to provide information about how the transaction might have affected the financial informationpresented on the basis of the accounting policies normally adopted by the Company. In this report,“Prospectus Regulation Rules” means the rules known as such as issued by the FCA under Part VI ofFSMA and as amended, consolidated, re-enacted, or replaced from time to time implementing andincorporating inter alia the Prospectus Regulation (Regulation (EU) 2017/1129 of the European Parliament)and the Prospectus Supplementary Regulation (Commission Delegated Regulation (EU) 2019/980). Thisreport is prepared in accordance with the requirements of Rule 3 of Annex 20 of the Prospectus RegulationRules and is given for the purpose of complying with that paragraph and for no other purpose.
Responsibilities
The Directors are responsible for preparing the Pro Forma Financial Information in accordance with therequirements of Rule 18.4 of Annex 1 and Annex 20 of the Prospectus Regulation Rules.
It is our responsibility to form an opinion, as per Rule 3 of Annex 20 of the Prospectus Regulation Rules,as to the proper compilation of the Pro Forma Financial Information and to report our opinion to theCompany. In providing this opinion we are not updating or refreshing any reports or opinions previouslymade by us on any financial information used in the compilation of the Pro Forma Financial Information,nor do we accept responsibility for such reports or opinions beyond that owed to those to whom thosereports or opinions were addressed by us at the dates of their issue.
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Basis of opinion
We conducted our work in accordance with the Standards for Investment Reporting issued by the FinancialReporting Council in the United Kingdom. The work that we performed for the purpose of making thisreport, which involved no independent examination of any of the underlying financial information, consistedprimarily of comparing the unadjusted financial information with the source documents, considering theevidence supporting the adjustments and discussing the Pro Forma Financial Information with the Directors.
We planned and performed our work so as to obtain the information and explanations we considerednecessary in order to provide us with reasonable assurance that the Pro Forma Financial Information hasbeen properly compiled on the basis stated and that such basis is consistent with the accounting policies ofthe Company.
Our work has not been carried out in accordance with auditing or other standards and practices generallyaccepted in any jurisdictions other than the United Kingdom and accordingly should not be relied upon as ifit had been carried out in accordance with those other standards and practices.
Opinion
In our opinion:
a) the Pro forma Financial Information has been properly compiled on the basis stated; and
b) such basis is consistent with the accounting policies of the Company.
Declaration
For the purposes of Prospectus Regulation Rule 5.3.2R(2)(f) we are responsible for this report as part of theProspectus and declare that, to the best of our knowledge, the information contained in this report is inaccordance with the facts and that this report makes no omission likely to affect its import. This declarationis included in the Prospectus in compliance with Rule 1.2 of Annex 1 of the Prospectus RegulationRules and Rule 1.2 of Annex 11 of the Prospectus Regulation Rules.
Yours faithfully
RSM Corporate Finance LLP
Regulated by the Institute of Chartered Accountants in England and Wales
RSM Corporate Finance LLP is a limited liability partnership registered in England and Wales, registeredno. OC325347. A list of the names of members is open to inspection at the registered office 25 FarringdonStreet London EC4A 4AB
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SECTION B: PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA INCOME STATEMENT OF THE ENLARGED GROUP
The following unaudited pro forma income statement of the Enlarged Group has been prepared to illustratethe effect on the consolidated income statement of the Enlarged Group as if the acquisitions of OTAQConnectors and OTAQ Offshore had taken place on 1 April 2018.
The pro forma income statement has been prepared for illustrative purposes only and, because of its nature,addresses a hypothetical situation and does not, therefore, represent the Enlarged Group’s actual results. Dueto rounding, the numbers presented below may not add up precisely to the totals indicated.
—————Notes:1. The income statement of the Company has been extracted without material adjustment from the Company’s audited accounts for the year
ended 30 June 2019, incorporated by reference in Section 2.13 of Part 14 of this Document.2. The income statement of the Existing OTAQ Group has been extracted without material amendment from the historical financial
information set out in Section B of Part 9 of this Document.3. The income statement of OTAQ Connectors has been extracted without material amendment from the historical financial information set
out in Section D of Part 9 of this Document.4. The income statement of OTAQ Offshore has been extracted without material amendment from the historical financial information set out
in Section F of Part 9 of this Document.5. This adjustment pro-rates the 15-month period of the OTAQ Connectors income statement to a 12-month period.6. This adjustment eliminates the post-acquisition trading results of OTAQ Offshore, included in the Existing OTAQ Group’s income
statement.7. All of the adjustments are expected to have a continuing effect on the Enlarged Group.8. No account has been taken of the financial performance of the Enlarged Group since 31 March 2019, nor of any other event, save as
disclosed above.9. The Unaudited Interim Financial Information, set out in Section B of Part 11 of this Document, includes the financial performance of
OTAQ Offshore for the six-month period ended 30 September 2019 and of OTAQ Connectors from acquisition on 29 April 2019 to30 September 2019.
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UNAUDITED PRO FORMA NETASSET STATEMENT OF THE ENLARGED GROUP
The following unaudited pro forma statement of net assets of the Enlarged Group has been prepared by theDirectors on the basis of the notes set out below, to show the effect of the Acquisition and Placing on thenet assets of the Enlarged Group as at 30 June 2019.
The pro forma financial information has been prepared for illustrative purposes only and, because of itsnature, addresses a hypothetical situation and, therefore, does not represent the Enlarged Group’s actualfinancial position either prior to or following re-admission.
—————Notes:1. The net assets of the Company have been extracted without material adjustment from the Company’s audited accounts for the year ended
30 June 2019, incorporated by reference in Section 2.13 of Part 14 of this Document.2. The net assets of the Existing OTAQ Group have been extracted without material adjustment from the Unaudited Interim Financial
Information as at 30 September 2019 as set out in Section B of Part 11 of this Document.3. The gross placing proceeds of the Placing are approximately £1.5 million. Expenses are £1.0 m. Net placing proceeds are therefore
approximately £0.5 million.4. Assuming Admission takes place before the end of March 2020, £0.537 million will be paid to repay the Shareholder Loans, comprising a
principal sum of £0.460 million and £0.077 million of interest.5. No account has been taken of any other movement in net assets of the Company since 30 June 2019 or of the Existing OTAQ Group since
30 September 2019, nor any fair value adjustments arising on the acquisition of OTAQ GL by the Company, nor any other event, save asdisclosed above. The acquisition adjustments, when finalised post acquisition, may be material.
6. The Transaction is not expected to result in any material difference to the income of the OTAQ GL, as reported in the consolidatedstatement of comprehensive income in Part 11 of this Document.
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PART 11
UNAUDITED INTERIM FINANCIAL INFORMATION
SECTION A: INDEPENDENT REVIEW REPORT ON THE UNAUDITEDINTERIM FINANCIAL INFORMATION
The following is the full text of a review report on the Existing OTAQ Group from RSM CorporateFinance LLP, the Reporting Accountants, to the Directors of the Company
The DirectorsHertsford Capital plcc/o Fladgate LLP16 Great Queen StreetLondonWC2B 5DG
24 March 2020
Dear Sirs
OTAQ Group Limited and its subsidiary undertakings (the “Existing OTAQ Group”)
Introduction
We have been engaged by Hertsford Capital plc (the “Company”) to review the condensed unaudited interimfinancial information relating to the Existing OTAQ Group for the six-month period ended 30 September2019 (“Unaudited Interim Financial Information”) set out in Section B of Part 11 of the prospectus dated24 March 2020 (“Prospectus”) of the Company. We have read the other information contained in theProspectus and considered whether it contains any apparent misstatements or material inconsistencies withthe Unaudited Interim Financial Information. In this letter, “Prospectus Regulation Rules” means the rulesknown as such as issued by the FCA under Part VI of FSMA and as amended, consolidated, re-enacted, orreplaced from time to time implementing and incorporating inter alia the Prospectus Regulation (Regulation(EU) 2017/1129 of the European Parliament) and the Prospectus Supplementary Regulation (CommissionDelegated Regulation (EU) 2019/980).
This report is made solely to the Company in accordance with the requirements of International Standard onReview Engagements (UK) 2410, “Review of Interim Financial Information Performed by the IndependentAuditor of the Entity” issued by the Financial Reporting Council in the United Kingdom (“ISRE 2410”), asif it applied to the Company’s auditor and for no other purpose. Our review work has been undertaken sothat we might state to the Company those matters we are required to state to them in an independent reviewreport and for no other purpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Company, for our review work, for this report, or for the opinionswe have formed or consenting to its inclusion in the Prospectus.
Responsibilities
The Unaudited Interim Financial Information is the responsibility of, and has been approved by, thedirectors of the Company (the “Directors”). The Directors are responsible for preparing the UnauditedInterim Financial Information in accordance with International Financial Reporting Standards as adopted bythe EU (“IFRS”) and by applying the accounting policies and presentation consistent with those that will be
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adopted in the Company’s next annual financial statements and the requirements of Rule 18.2 of Annex 1 ofthe Prospectus Regulation Rules.
Our responsibility is to express to the Company a conclusion on the Unaudited Interim FinancialInformation, for the purposes of the Prospectus, based on our review.
Save for any responsibility arising under Prospectus Regulation Rule 5.3.2R(2)(f) to any person as and tothe extent there provided, to the fullest extent permitted by law, we do not accept or assume responsibilityand will not accept any liability to any other person for any loss suffered by any such other person as aresult of, arising out of, or in connection with this report or our statement, required by and given solely forthe purposes of complying with Rule 1.3 of Annex 1 of the Prospectus Regulation Rules, or consenting toits inclusion in the Prospectus.
Scope of review
We conducted our review in accordance with the Standards for Investment Reporting issued by the FinancialReporting Council in the United Kingdom and ISRE 2410 as if it applied to the Company’s auditor. Areview of interim financial information consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other review procedures. A review issubstantially less in scope than an audit conducted in accordance with International Standards on Auditing(UK) and consequently does not enable us to obtain assurance that we would become aware of allsignificant matters that might be identified in an audit. Accordingly, we do not express an audit opinion onthe Unaudited Interim Financial Information.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that, for the purposes ofthe Prospectus, the Unaudited Interim Financial Information has not been prepared, in all material respects,with International Financial Reporting Standards as adopted by the EU.
Declaration
For the purposes of Prospectus Regulation Rule 5.3.2R(2)(f) we are responsible for this report as part of theProspectus and declare that, to the best of our knowledge, the information contained in this report is inaccordance with the facts and that this report makes no omission likely to affect its import. This declarationis included in the Prospectus in compliance with Rule 1.2 of Annex 1 of the Prospectus RegulationRules and Rule 1.2 of Annex 11 of the Prospectus Regulation Rules.
Yours faithfully
RSM Corporate Finance LLP
Regulated by the Institute of Chartered Accountants in England and Wales
RSM Corporate Finance LLP is a limited liability partnership registered in England and Wales, registeredno. OC325347. A list of the names of members is open to inspection at the registered office 25 FarringdonStreet London EC4A 4AB
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SECTION B: UNAUDITED INTERIM FINANCIAL INFORMATION ON THEEXISTING OTAQ
GROUP FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019
THE EXISTING OTAQ GROUP
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Operating loss (46) (234)Finance expense (97) (22)
Loss on ordinary activities before taxation (143) (256)Taxation 6 —
Loss for the period and total comprehensive loss for theperiod (137) (256)
Attributable to:The owners of the company (136) (261)Non-controlling interests (1) 5
(137) (256)
The loss for the period arises from the Existing OTAQ Group’s continuing operations.
There were no other items of comprehensive income for the period (2018: £nil) and therefore the loss forthe period is also the total comprehensive loss for the period.
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THE EXISTING OTAQ GROUP
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
IssuedEquitycapital
SharePremium
OtherReserve
RevenueReserve
Net Equityfor OTAQ
Shareholders
Non-Controlling
InterestsTotal
Equity£000 £000 £000 £000 £000 £000 £000
At 31 March 2018 — 1,990 (122) (1,218) 650 (2) 648
Loss for the period andtotal comprehensiveloss for the period — — — (261) (261) 5 (256)Issue of share capital(Note 8) — 1,354 — — 1,354 — 1,354Expenses of shareissues (Note 8) — (63) — — (63) — (63)
At 30 September 2018Unaudited — 3,281 (122) (1,479) 1,680 3 1,683
At 31 March 2019 — 3,531 355 (1,583) 2,303 (6) 2,297Loss for the period andtotal comprehensiveloss of the period — — — (136) (136) (1) (137)Deferred cost ofAcquisition of OTAQConnectors (note 6) — — 25 — 25 — 25Unwinding of discounton deferred cost ofOTAQ Offshoreacquisition — — 40 — 40 — 40Issue of share capital(Note 8) — 1,139 — 1,139 — 1,139Expenses of shareissues (Note 8) — (50) — — (50) — (50)
At 30 September 2019Unaudited — 4,620 420 (1,719) 3,321 (7) 3,314
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THE EXISTING OTAQ GROUP
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
6-monthperiod ended30 September
2019Unaudited
6-monthperiod ended30 September
2018Unaudited
Notes £000 £000
Cash flows from operating activitiesLoss after interest and tax (137) (256)Adjustments for:Depreciation of tangible fixed assets 261 124Amortisation of intangible assets 100 29Unwinding of discount 76 —Taxation Charge (6) —Changes in working capital:Decrease in inventories 7 —(Increase)/decrease in trade and other receivables (97) 528Increase/(decrease) in trade payables and other payables 160 (201)
Cash inflow from operating activities 364 224Tax credit received 6 —
Net cash inflow from operating activities 370 224
Cash flows from investing activitiesPurchases of tangible fixed assets (385) (545)Purchases of intangible fixed assets (190) (33)Payment of acquisition of subsidiary, net of cash acquired 6 (289) —
Net cash outflow from investing activities (864) (578)
Cash flow from financing activitiesProceeds from issues of ordinary share capital 8 1,073 1,354Expenses of share issues (50) (63)Proceeds from loan 255 16
Net cash inflow from financing activities 1,278 1,307Increase in cash and cash equivalents 784 953Cash and cash equivalents at the start of the period 368 301
Cash and cash equivalents at the end of the period 1,152 1,254
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THE EXISTING OTAQ GROUP
NOTES TO THE CONDENSED UNAUDITED INTERIM FINANCIAL INFORMATION
1. General information
OTAQ GL is a private limited company, limited by share capital, incorporated and domiciled inEngland. The address of its registered office is 8-3-4 Harpers Mill, South Road, White Cross,Lancaster, LA1 4XF.
The principal activity of OTAQ GL and its subsidiary undertakings (the “Existing OTAQ Group”) isthe development, provision and support of marine technology for use in the aquaculture and offshoreoil and gas industries.
2. Basis of preparation
This condensed consolidated interim financial information for the six months ended 30 September2019 has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as adopted by theEuropean Union. It does not include all the information required by International Financial ReportingStandards (“IFRS”) in full annual financial statements and should therefore be read in conjunction withthe historical financial information set out in Section B of Part 9 of this document.
The condensed interim financial information for the six months ended 30 September 2019 and thecomparative figures for the six months ended 30 September 2018 are unaudited. The figures for theyear ended 31 March 2019 have been extracted from the historical financial information set out inSection B of Part 9 of this document.
The accounting policies adopted are consistent with those applied in the historical financialinformation, except for the adoption of new amended standards as set out below.
New Amended standards adopted by the group
i) IFRS 16 ‘leases’ is a new accounting standard effective for accounting periods commencing onor after 1 January 2019 and is therefore applicable for the current interim reporting period.IFRS 16 replaces IAS 17 in providing a one lease accounting model requiring the recognition ofassets and liabilities for all leases with the option to exclude leases where the underlying asset isof low value or the lease term is 12 months or less as at 1 April 2019 (the date of application).Given that all leases that the Existing OTAQ Group holds are for a duration of less than12 months, the Existing OTAQ Group has elected to use this option and therefore the adoptionof IFRS 16 has not had any financial impact and did not require retrospective adjustment.
ii) IFRIC 23 “Uncertainty over income tax treatments” became effective for the first time for theinterim period with no material impact on the reported amounts.
3. Segment Information
The Existing OTAQ Group operates three primary segments, being the rental of intelligent acousticsystems designed to deter seals and sea lions from attacking fish farms (aquaculture), rentals ofunderwater measurement & leak detection devices in the Offshore (oil & gas) market and themanufacture and supply of underwater communication and other marine goods. This is the level atwhich operating results are reviewed by the chief operating decision maker (i.e. the CEO) to makedecisions about resources, and for which financial information is available. All revenues have beengenerated from continuing operations and are from external customers.
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6-MonthPeriod to
30 September2019
Unaudited
6-MonthPeriod to
30 September2018
Unaudited£000 £000
Analysis of revenue by segmentAmounts earned from Aquaculture equipment rentals and associatedcharges 935 572Amounts earned from Offshore equipment rentals 343 —Product sales and development income 479 81
1,757 653
Analysis of revenue by geographic locationUK 1,308 572Europe (excluding UK) 133 81South America 125 —Rest of the World 191 —
1,757 653
4. Administrative expenses
6-MonthPeriod to
30 September2019
Unaudited
6-MonthPeriod to
30 September2018
Unaudited£000 £000
Wages and salaries (including directors’ fees) 574 332Rent and utilities 58 25Motor and travel 131 92Computer expenses and office sundries 11 24Marketing 6 9Research and development 9 22Legal and professional 103 34Audit and accountancy 41 22Depreciation and amortisation 124 41
1,057 601
5. Goodwill
Goodwill held by the Existing OTAQ Group increased since 31 March 2019 by £419,000 as a resultof the acquisition of OTAQ Connectors (formerly named Link Subsea Limited). See note 6 for furtherinformation.
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6. Acquisition of OTAQ Connectors
On 29 April 2019, OTAQ GL acquired 100% of the issued share capital of OTAQ Connectors, asupplier of connectors, penetrators and underwater communication products for the offshore, seismic,commercial, diving and nuclear energy industries. Details of the purchase consideration, the net assetsacquired and goodwill are as follows:
The deferred consideration consists of 8 shares to be issued to the former owners of OTAQConnectors on the first anniversary of the acquisition (29 April 2020) plus half of the deferred cashpayment; on the second anniversary of completion (29 April 2021) a further 7 shares will be issuedtogether with a final payment of the balance of the deferred cash payment. If the obligation to issueconsideration shares falls after Admission, the shares to be issued are such number of Ordinary Sharesin the Company that have an aggregate minimum market value of £14,000 in respect of the shares tobe issued on 29 April 2020 and £16,000 in respect of the shares to be issued on 29 April 2021.
There is no contingent consideration.
The fair value of the 35 shares issued as part of the consideration paid for OTAQ Connectors atcompletion date (see Note 8 “Issued share capital”), as well as the fair value of 15 deferredconsideration shares was based on OTAQ GL’s share price of £1,900 per share determined as a resultof valuation performed in April 2019.
The assets and liabilities recognised as a result of the acquisition are as follows:
Net identifiable assets acquired 401Add: Goodwill 419
Net assets acquired 820
The goodwill is attributable to the workforce and the high profitability of the acquired business. It willnot be deductible for tax purposes.
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The company manufactures a range of industry standard products and has not historically used tradenames, so the directors consider there are no intangibles to be recognised at fair value.
The fair value of acquired receivables is £174,000. The gross contractual amount for trade receivablesdue is £174,000 none of which is expected to be uncollectible.
Purchase consideration – cash outflow
6-MonthPeriod to
30 September2019
Unaudited
6-MonthPeriod to
30 September2018
Unaudited
Outflow of cash to acquire subsidiary, net of cash acquired £000 £000Cash consideration 643 —Less: cash acquired (354) —
Net outflow of cash – investing activities 289 —
7. Related party transactions
Transactions with shareholders and companies controlled by directors
The following transactions with shareholders and companies controlled by directors of the ExistingOTAQ Group were recorded during the period:
6-MonthPeriod to
30 September2019
6-MonthPeriod to
30 September2018
Unaudited UnauditedCharges incurred during the 6-month period £000 £000
ROS Technology Limited – a company controlled by a director formanagement charges invoiced — 1Corsie Technology Limited – a company controlled by a director forgoods and services provided 40 40QualiteQ – a company controlled by a director 10 —Mont Joly – a company controlled by a director for goods and servicesprovided 37 27
Balances at the end of the periodQualiteQ – a company controlled by a directorInvoices paid by the Existing OTAQ Group 3 —Mr P D Newby – a directorDebt due to the Existing OTAQ Group — 40Various ShareholdersShort-term loans payable by the Existing OTAQ Group 486 285
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8. Issued share capital
Ordinaryshares Share capital
Sharepremium Total
Number £000 £000 £000
Allotted, called up and fully paidordinary shares of 3.125 pence
As at 31 March 2018 2,215 — 1,990 1,990Shares issued 830 — 1,354 1,354Expenses of share issues — — (63) (63)
As at 30 September 2018(Unaudited) 3,045 — 3,281 3,281
Ordinaryshares Share capital
Sharepremium Total
Number £000 £000 £000
As at 31 March 2019 3,196 — 3,531 3,531Shares issued as part of acquisition(Note 5) 35 66 66Shares issued for cash 565 1,073 1,073Expenses of share issues — (50) (50)
As at 30 September 2019(Unaudited) 3,796 — 4,620 4,620
The balances classified as share capital and share premium include the total net proceeds (nominalvalue and share premium respectively) on issue of OTAQ GL’s equity share capital, comprisingordinary shares.
Share issues in the 6-month period ended 30 September 2018 (Unaudited)
During April 2018, OTAQ GL raised gross proceeds of £34,000 through the issue of 30 ordinaryshares at an issue price of £1,150 per share.
During July 2018, OTAQ GL raised gross proceeds of £1,320,000 through the issue of 800 ordinaryshares at an issue price of £1,650 per share.
Expenses associated with above shares issued in the 6-month period ended 30 September 2018 totalled£63,000 and have been deducted from share premium.
Share issues in the 6-month period ended 30 September 2019 (Unaudited)
During April 2019, OTAQ GL raised gross proceeds of £1,066,000 through the issue of 561 ordinaryshares at an issue price of £1,900 per share.
During April 2019, OTAQ GL raised gross proceeds of £7,000 through the issue of 4 ordinary sharesat an issue price of £1,650 per share.
On 29 April 2019, OTAQ GL issued 35 shares valued at £1,900 per share with a value of £66,000,being part of the consideration for the acquisition of OTAQ Connectors. See also Note 6.
Expenses associated with above shares issued in the 6-month period ended 30 September 2019 totalled£50,000 and have been deducted from share premium.
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9. Subsequent events
On 6 February 2020, the name of Link Subsea Limited was changed to OTAQ Connectors Limited.
On 7 February 2020, the name of Marinesense Ltd was changed to OTAQ Offshore Limited.
On 7 February 2020, the name of OTAQ Limited was changed to OTAQ Aquaculture Limited.
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PART 12
TAXATION
General
The following statements do not constitute tax advice and are intended only as a general guide to currentEnglish law as applied in England and Wales and HM Revenue & Customs (“HMRC”) published practice,which may not be binding on HMRC, as at the date of this Document (which are both subject to change atany time, possibly with retrospective effect). They relate only to certain limited aspects of the UK taxationtreatment of Shareholders in connection with the Placing and Admission and are intended to apply only,except to the extent stated below, to persons who are resident and, if individuals, domiciled in the UK fortax purposes, who are absolute beneficial owners of Ordinary Shares (otherwise than through an IndividualSavings Account or a Self-Invested Personal Pension) and who hold the Ordinary Shares as investments(and not as securities to be realised in the course of a trade).
They may not apply to certain Shareholders, such as dealers in securities, insurance companies andcollective investment schemes, Shareholder who are exempt from taxation and Shareholders who have (orare deemed to have) acquired their Ordinary Shares by virtue of an office or employment. Such personsmay be subject to special rules.
The tax position of certain categories of Shareholders who are subject to special rules, such as persons whoacquire (or are deemed to acquire) their Ordinary Shares in connection with their (or another person’s) officeor employment, traders, brokers, dealers in securities, insurance companies, banks, financial institutions,investment companies, tax-exempt organisations, persons connected with the Company or the EnlargedGroup, persons holding Ordinary Shares as part of hedging or conversion transactions, Shareholders who arenot domiciled or not resident in the UK, collective investment schemes, trusts and those who hold 5 percent. or more of the Ordinary Shares, is not considered. Nor do the following statements consider the taxposition of any person holding investments in any HMRC approved arrangements or schemes, including theenterprise investment scheme, venture capital scheme or business expansion scheme.
Any person who is in any doubt as to their tax position, or who is subject to any taxation in anyjurisdiction other than the UK, should consult their own professional adviser without delay.
United Kingdom taxation
Taxation of dividends
General
There is no UK withholding tax on dividends, including cases where dividends are paid to a Shareholderwho is not resident (for tax purposes) in the UK.
UK resident Individual Shareholders
Dividend income is regarded as the top slice of the individual’s income. Each individual will have anannual dividend allowance of £2,000 which means that they will not pay tax on the first £2,000 of alldividend income that they receive (the “Dividend Allowance”).
Dividends in excess of the Dividend Allowance will be taxed at the individual’s marginal rate of tax. Wherethe dividend income falls within the basic rate income tax band that dividend income is taxable at 7.5 percent. (the “dividend ordinary rate”). Where the dividend income falls within the higher rate income taxband, it is taxable at 32.5 per cent. (the “dividend upper rate”) and where it falls within the additional rateincome tax band, it is taxable at 38.1 per cent. (the “dividend additional rate”).
UK discretionary trustees
The annual Dividend Allowance available to individuals will not be available to UK resident trustees of adiscretionary trust. UK resident trustees of discretionary trusts receiving dividends from shares are liable toaccount for income tax at the dividend trust rate, currently 38.1 per cent., subject to any reliefs. Trustees ofnon-resident discretionary trusts receiving dividends from shares may also be liable to income tax in certaincircumstances.
Corporate Shareholders
A corporate Shareholder resident in the UK for tax purposes will be subject to UK corporation tax ondividend payments received from the Company unless the dividend falls within one of the exempt classesset out in Part 9A of the Corporation Tax Act 2009.
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If the conditions for exemption are not met, or the Shareholder elects for an otherwise exempt dividend tobe taxable, the Shareholder will be subject to UK corporation tax on dividend payments received from theCompany at the relevant corporation tax rates, currently 19 per cent. and reducing to 17 per cent. from1 April 2020, under enacted UK law.
Taxation of chargeable gains
For the purpose of UK tax on chargeable gains, the acquisition of Ordinary Shares pursuant to the Placingwill be regarded as an acquisition of a new holding in the share capital of the Company. The OrdinaryShares so allotted will, for the purpose of tax on chargeable gains, be treated as acquired on the date ofallotment. The amount paid for the Ordinary Shares will usually constitute the base cost of a shareholder’sholding for UK tax purposes.
Individual Shareholders
A disposal of Ordinary Shares may give rise to a chargeable gain (or allowable loss) for the purposes ofUK capital gains tax, depending on the circumstances and subject to any available exemption or relief. ForShareholders who are UK tax resident or temporarily non-UK tax resident, capital gains tax at a rate of10 per cent. (for basic rate taxpayers) or 20 per cent. (for higher or additional rate taxpayers) may bepayable on any gain (after any available exemptions, reliefs or losses).
Corporate Shareholders
Where a Shareholder is within the charge to UK corporation tax, a disposal of Ordinary Shares may giverise to a chargeable gain (or allowable loss), depending on the circumstances and subject to any availableexemption or relief.
Corporation tax is charged on chargeable gains currently at the rate of 19 per cent. and reducing to 17 percent. from 1 April 2020, as stated above.
Stamp Duty and Stamp Duty Reserve Tax (“SDRT”)
The statements below summarise the current position and are intended as a general guide only to stampduty and SDRT. Certain categories of person are not liable to stamp duty or SDRT, and special rules applyto agreements made by broker dealers and market makers in the ordinary course of their business and tocertain categories of person (such as depositaries and clearance services) who may be liable to stamp dutyor SDRT at a higher rate or who may, although not primarily liable for tax, be required to notify andaccount for SDRT under the Stamp Duty Reserve Tax Regulations 1986.
No UK stamp duty or SDRT should be payable on the issue of New Ordinary Shares pursuant to thePlacing and Admission, other than as explained below.
Dealings in Ordinary Shares will generally be subject to stamp duty or SDRT in the normal way. Aninstrument effecting the transfer on sale of Ordinary Shares will generally be liable to stamp duty at the rateof 0.5 per cent. (rounded up, if necessary, to the nearest multiple of £5) of the amount or value of theconsideration payable. However, where the amount or value of the consideration is £1,000 or less, andprovided that the transfer does not form part of a larger transaction or series of transactions where thecombined consideration exceeds £1,000, such instrument should be exempt from charge upon certification ofsuch facts.
An unconditional agreement to transfer Ordinary Shares will generally be liable to SDRT at the rate of0.5 per cent. of the amount or value of the consideration payable, but such liability will be cancelled, or aright to a repayment (generally, with interest) in respect of the payment of such SDRT liability will arise, ifthe agreement is completed by a duly stamped or exempt transfer within six years of the agreement havingbecome unconditional. Stamp duty and SDRT are normally a liability for the purchaser.
No stamp duty or SDRT will arise on a transfer of Ordinary Shares into the CREST system provided thatthe transfer is not for money or money’s worth. Paperless transfers of Ordinary Shares within CREST areliable to SDRT (at a rate of 0.5 per cent. of the amount or value of the consideration payable) rather thanstamp duty, and SDRT arising on the agreement to transfer Ordinary Shares under relevant transactionssettled within the system or reported through it for regulatory purposes will generally be collected byCREST.
This summary of UK taxation issues can only provide a general overview of these areas and it is nota description of all the tax considerations that may be relevant to a decision to invest in theCompany. the summary of certain UK tax issues is based on the laws and regulations in force as of
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the date of this document and may be subject to any changes in UK laws occurring after such date.Legal advice should be taken with regard to individual circumstances. Any person who is in anydoubt as to their tax position or where they are resident, or otherwise subject to taxation, in ajurisdiction other than the UK, should consult their professional adviser.
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PART 13
CONSEQUENCES OF A STANDARD LISTING
As the Acquisition is classified as a Reverse Takeover, upon completion of the Acquisition, the StandardListing of the Ordinary Shares will be cancelled and further applications will be made to the UK ListingAuthority for the immediate re-admission of the Ordinary Shares (at such time comprising the ExistingOrdinary Shares and the New Ordinary Shares) to Standard Listing (pursuant to Chapter 14 of the ListingRules) and to trading on the Main Market of the London Stock Exchange. Listing Principles 1 and 2 as setout in Listing Rule 7.2.1 of the Listing Rules also apply to the Company, and the Company must complywith such Listing Principles. Premium Listing Principles 1 to 6 as set out in Listing Rule 7.2.1AR of theListing Rules do not apply to the Company.
However, while the Company has a Standard Listing, it is not required to comply with the provisions ofinter alia:
* Chapter 8 of the Listing Rules regarding the appointment of a sponsor to guide the Company inunderstanding and meeting its responsibilities under the Listing Rules in connection with certainmatters. The Company has not and does not intend to appoint such a sponsor in connection with thePlacing and Admission.
* Chapter 9 of the Listing Rules relating to the ongoing obligations for companies admitted to thePremium List, which therefore does not apply to the Company.
* Chapter 10 of the Listing Rules relating to significant transactions. It should be noted therefore thatthe Acquisition did not require Shareholder consent;
* Chapter 11 of the Listing Rules regarding related party transactions. Nevertheless, the Company willnot enter into any transaction which would constitute a ‘related party transaction’ as defined inChapter 11 of the Listing Rules without specific prior approval of the independent Directors;
* Chapter 12 of the Listing Rules regarding purchases by the Company of its Ordinary Shares. Inparticular, the Company has not adopted a policy consistent with the provisions of ListingRules 12.4.1 and 12.4.2. Until an acquisition the Company will have unlimited authority to purchaseOrdinary Shares, subject to the restrictions set out in the Companies Act; and
* Chapter 13 of the Listing Rules regarding the form and content of circulars to be sent to Shareholders.
The Company is not currently eligible for a Premium Listing under Chapter 6 of the Listing Rules).Following the Acquisition (which constitutes a reverse takeover for the purposes of the Listing Rules, theCompany’s Standard Listing will be cancelled and the Company will be treated as a new applicant. At thatpoint the Directors may seek admission as a Standard Listing or as a Premium Listing or anotherappropriate listing venue, based on the track record of the Company or business it acquires, subject tofulfilling the relevant eligibility criteria at the time. Alternatively, it may determine to seek re-admission to aStandard Listing, subject to eligibility criteria. If admission with a Premium Listing is possible (and therecan be no guarantee that it will be) and the Company decides to seek a Premium Listing, the variousListing Rules highlighted above as rules with which the Company is not required to comply will becomemandatory and the Company will comply with the continuing obligations contained within the ListingRules (and the Disclosure Guidance and Transparency Rules) in the same manner as any other companywith a Premium Listing. There can be no guarantee that once an acquisition is completed and the Companyloses its Standard Listing that it will be eligible for admission to any public market.
It should be noted that the FCA will not have authority to (and will not) monitor the Company’scompliance with any of the Listing Rules which the Company has indicated herein that it intends tocomply with on a voluntary basis, nor to impose sanctions in respect of any failure by the Companyso to comply. However, the FCA would be able to impose sanctions for non-compliance where thestatements regarding compliance in this Prospectus are themselves false, misleading or deceptive.
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PART 14
ADDITIONAL INFORMATION
1. RESPONSIBILITY STATEMENT
1.1 The Directors and the Proposed Directors of the Company, whose names appear in Part 4 of thisDocument, and the Company, declare that, to the best of their knowledge, the information contained inthis Document is in accordance with the facts and that this Document makes no omission likely toaffect its import.
1.2 Each of the members of the Concert Party, whose names appear in paragraph 19.1 of this Part 14 ofthis Document, accept responsibility for the information contained in this Document relating to himselfor itself. To the best of the knowledge and belief of each member of the Concert Party theinformation contained in this Document for which they are responsible is in accordance with the factsand that this Document makes no omission likely to affect its import.
2. THE COMPANY, ITS SHARE CAPITAL, SUBSIDIARIES AND PRIOR AUDITED ACCOUNTS
The Company
2.1 The Company was incorporated and registered in England and Wales on 22 June 2018 under theCompanies Act as a public company limited by shares with the name Hertsford Capital PLC andregistered number 11429299.
It is proposed that, following Completion, pursuant to the Resolutions the Company will change itsname to OTAQ plc.
The registered office of the Company is at 16 Great Queen Street, London WC2B 5DG. FromAdmission, the registered office of the Company will be changed to 8-3-4 Harpers Mill South Road,White Cross, Lancaster, LA1 4XF and the telephone number of the Company’s principal place ofbusiness will be 01524 748080.
The principal legislation under which the Company operates is the Companies Act and the regulationsmade under the Companies Act.
The principal activity of the Enlarged Group will be the design, development, provision and support ofmarine technology for use in the aquaculture industry and offshore oil and gas industries.
The Company’s accounting reference date is 30 June each year. It is proposed that, with effect fromAdmission, the Company’s accounting reference date be changed to 31 March each year which willensure that the accounting reference date of the Enlarged Group is consistent. As a consequence, theCompany’s current accounting reference period will be shortened such that it will end on 31 March2020.
2.2 Share capital
2.2.1 The Company was incorporated with a share capital of two pence (£0.02) divided into 2Ordinary Shares of 1 pence (£0.01) each, of which two (2) were issued fully paid to thesubscribers to the Company’s memorandum of association.
2.2.2 On 23 July 2018, a further four ordinary shares of 1 pence each were issued fully paid;
2.2.3 On 23 July 2018, the entire issued share capital of the Company was consolidated on a three-for-one basis, such that the nominal value of the Ordinary Shares became 3 pence;
2.2.4 Subsequently, on 23 July 2018, the Company allotted and issued a further 1,666,666 OrdinaryShares paid up in full;
2.2.5 On 3 August 2018, the Company obtained its trading certificate pursuant to section 761 of theCompanies Act;
2.2.6 On 1 November 2018, the Company allotted and issued a further 333,333 Ordinary Shares at3 pence per share for cash, paid up in full; and
2.2.7 On 21 November 2018, the Company allotted and issued a further 3,000,000 Ordinary Shares at10 pence per share for cash, paid up in full; and
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2.2.8 The Company will allot and issue a further 4 Ordinary Shares at 3 pence per share for cash,paid up in full after the date of this Document but as part of the Consolidation (to arrive at around number of shares).
2.3 Information on the New Ordinary Shares
The New Ordinary Shares are Ordinary Shares of 3 pence each in the capital of the Company. TheCompany’s ISIN is GB00BK6JQ137. The New Ordinary Shares have been created under theCompanies Act. The currency of the New Ordinary Shares is Pounds Sterling.
The New Ordinary Shares currently contain the following rights:
2.3.1 Shareholders will have the right to receive notice of and to attend and vote at any meetings ofShareholders. Each Shareholder entitled to attend and being present in person or by proxy at ameeting will, upon a show of hands, have one vote and upon a poll each Shareholder present inperson or by proxy will have one vote for each Ordinary Share held by such Shareholder;
2.3.2 In the case of joint holders of an Ordinary Share, if two or more persons hold an OrdinaryShare jointly, the vote of the senior who tenders a vote whether in person or by proxy, shall beaccepted to the exclusion of the other joint holders and for this purpose, seniority is determinedby the order in which the names stand in the register of members in respect of the joint holding;
2.3.3 It is expected that pre-emption rights on an issue of new Ordinary Shares (will be disapplied (inrespect of future share issues whether for cash or otherwise) pursuant to the Resolutions;
2.3.4 Subject to the Companies Act, on a winding-up of the Company, the assets of the Companyavailable for distribution shall be distributed, provided there are sufficient assets available, first tothe holders of Ordinary Shares in an amount up to 3 pence per share in respect of each fullypaid up Ordinary Share. If, following these distributions to holders of Ordinary Shares there areany assets of the Company still available, the shall be distributed to the holders of OrdinaryShares pro rata to the number of such fully paid up Ordinary Shares held (by each holder asthe case may be) relative to the total number of issued and fully paid up Ordinary Shares;
2.3.5 the Company may, subject to the provisions of the Companies Act and the Articles, by ordinaryresolution from time to time declare dividends to be paid to members not exceeding the amountrecommended by the Directors
Trading in the Company’s Ordinary Shares was suspended following application by the Company on12 February 2020. Application has been made for the Ordinary Shares to be admitted to a StandardListing on the Official List and to trading on the London Stock Exchange’s Main Market for listedsecurities. It is expected that trading in the Company’s Ordinary Shares will recommence onAdmission and that Admission will become effective and unconditional dealings will commence at8 a.m. on 31 March 2020.
The New Ordinary Shares have no restrictions on their transferability. All Ordinary Shares in thecapital of the Company are freely transferrable save for the requirement of certain Shareholders not totransfer for a period from Admission and the publication of the Company’s preliminary results for thisperiod to 31 March 2020 or 150 days following Admission whichever is earlier (further details ofwhich are set out in paragraph 12.12 of this Part 14).
Every five New Ordinary Shares (of 3p each) will be consolidated pursuant to the ConsolidationResolution into one Ordinary Share of 15p.
2.4 Warrants
1,600,000 Warrants over Ordinary Shares were granted by the Company on 27 November 2018 tovarious individuals pursuant to the terms of the Warrant Instrument, details of which together withproposed changes to the Warrant Instrument, are set out in paragraph 17 of Part 7 of this Document.
2.5 New Ordinary Share Options
As at the date of this Document, options over a total of not more than 284 ordinary shares in thecapital of OTAQ GL have been granted, details of which are set out in paragraph 16 of Part 7 of thisDocument.
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2.6 As at the date of this Document the issued share capital of the Company is:
Nominal value (3p per share) Number of Ordinary Shares
£960,000.03 32,000,001
Following the Consolidation but before Admission, the issued share capital of the Company will be:
Nominal value (15p per share) Number of Ordinary Shares
£960,000.15 6,400,001
2.7 Following the Placing, and the issue of the Consideration Shares (but excluding the Warrant Exerciseand Ordinary Shares to be allotted thereunder and excluding the OTAQ Option Shares), the issued(fully paid) share capital of the Company will be £4,582,289.85 divided into 30,548,599 OrdinaryShares. A total of one million Ordinary Shares will be reserved for issue under the terms of theproposed share incentive plan described in paragraph 16 of Part 7 of this Document and in relation tothe issue of the OTAQ Option Shares described in paragraph 16 of Part 7 of this Document.
2.8 The provisions of section 561 of the Companies Act (to the extent not disapplied as referred to inparagraph 2.3.3 above of this Part) confer on shareholders rights of pre-emption in respect of theallotment of equity securities (as defined in section 560 of the Companies Act) which are, or are tobe, paid up fully in cash. Statutory rights of pre-emption have been disapplied in order to:
2.8.1 permit the Directors to allot the Consideration Shares;
2.8.2 permit the Directors to allot the Placing Shares;
2.8.3 permit the Directors to allot Ordinary Shares on exercise of the Warrants;
2.8.4 permit the Directors to allot the OTAQ Option Shares; and
2.8.5 give the Directors flexibility in relation to rights or other pre-emptive issues;
2.9 The Ordinary Shares have been and will be created pursuant to the Companies Act and the Articlesand will be sterling denominated. Prior to the Consolidation, these Ordinary Shares had a nominalvalue of 3 pence per share in the capital of the Company. After the Consolidation, these OrdinaryShares will have a nominal value of 15p per share. The Ordinary Shares will have the ISIN NumberGB00BK6JQ137.
2.10 The Ordinary Shares are in registered form and are capable of being held in uncertificated form. TheCompany has applied to Euroclear for the New Ordinary Shares to be admitted to CREST with effectfrom Admission. CREST is a paperless settlement procedure enabling securities to be evidencedotherwise than by certificate and transferred otherwise than by written instrument. The Articles ofAssociation will permit the holding of Ordinary Shares under CREST. CREST is a voluntary systemand holders of Ordinary Shares who wish to retain share certificates will be able to do so.
Organisational structure, subsidiary undertakings and other holdings
2.11 Following Admission, the Company will be the holding company of the Enlarged Group with theCompany’s immediate subsidiary being OTAQ GL. Up to Admission OTAQ GL is the holdingcompany of the Existing OTAQ Group. Below is a list of the subsidiary undertakings of the Companythat, following Admission, will be significant in terms of the Enlarged Group’s assets and liabilities,financial position or profits and losses. Following Admission, each of these companies will be directlyor indirectly wholly owned by the Company, the issued share capital of each is fully paid. There areno different voting powers.
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Name Issued share capital Principal activity
OTAQ Group Limited(registered number 05471794)(England and Wales)
4,128 ordinary shares Holding company.
OTAQ Connectors Limited(formerly named Link SubseaLimited) (registered number03390514) (England and Wales)
100 ordinary shares Design and manufacturing of highintegrity under water connectorsused in the offshore oil industry
The financial statements of the above companies are consolidated in the annual financial statements ofthe Existing OTAQ Group for the year 31 March 2019 save for OTAQ Connectors which wasacquired by OTAQ GL after 31 March 2019 and Oceansense Limited which was acquired on1 October 2019.
2.12 Audited Accounts of the Company
The Company’s audited accounts for the year ended 30 June 2019 are incorporated by reference andcan be accessed at http://hertsford-capital.com/.
3. THE GENERAL MEETING
3.1 The following ordinary resolutions will be proposed at the General Meeting:
1. That the grant of a waiver by the Panel of any obligation that would otherwise arise underRule 9 of the Takeover Code for any of the Concert Party to make a general offer toShareholders, as a result of the allotment and issue to them of the Consideration Shares, theConcert Party Placing Shares, any Concert Party Warrant Shares and Option Shares, be and ishereby approved.
2. That, subject to the passing of resolution 1 and in accordance with article 55 of the Company’sarticles of association and section 618 of the Companies Act 2006, every existing five ordinaryshares of £0.03 (three pence) each in the capital of the Company in issue be consolidated intoone ordinary share of £0.15 (fifteen pence) each in the capital of the Company, such ordinaryshares having the same rights and being subject to the same restrictions (save as to nominalvalue) as the existing ordinary shares of £0.03 each in the capital of the Company as set out inthe Company’s articles of association from time to time.
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3. That, subject to the passing of resolution 2:
3.1 the Directors be generally and unconditionally authorised pursuant to section 551 of theCompanies Act 2006 (CA 2006) to issue and allot shares in the Company or grant rightsto subscribe for or convert any security into shares of the Company (Rights) up to anaggregate nominal amount of £7,079,627.55, provided that this authority will, unlesspreviously renewed, varied or revoked, expire on 31 March 2021 or, if earlier, at theconclusion of the next annual general meeting of the Company except that the Companymay, before such expiry, make offers or agreements which would or might require Rightsto be allotted or granted after such expiry and the Directors may allot or grant Rights inpursuance of such offer or agreement notwithstanding that the authority conferred by thisresolution has expired; and
3.2 this authority revokes and replaces all unexercised authorities previously granted to theDirectors to allot or grant Rights, but without prejudice to any allotment of shares orgrant of rights already made, offered or agreed to be made pursuant to such authorities.
3.2 The following special resolutions will be proposed at the General Meeting:
4. That, subject to the passing of resolution 3:
4.1 in accordance with section 570 CA 2006, the Directors be given the general power toallot equity securities (as defined in section 560 CA 2006) for cash, pursuant to theauthority conferred by resolution 3 for cash as if section 561(1) CA 2006 did not apply toany such allotment. This power is limited to:
4.1.1 (subject to such exclusions or other arrangements as the board of directors may deemnecessary or expedient in relation to treasury shares, fractional entitlements, record dates,legal or practical problems in, or under, the laws of any territory or the requirements ofany regulatory body or stock exchange) the allotment of equity securities in connectionwith an offer:
4.1.1.1 the allotment of the Consideration Shares, the Placing Shares and the OptionShares;
4.1.1.2 by way of rights issue:
(a) to the holders of ordinary shares in proportion (as nearly as may bepracticable) to their respective holdings; and
(b) holders of other equity securities as required by the rights of thosesecurities or as the Directors otherwise consider necessary.
4.1.2 the allotment (otherwise than pursuant to 4.1.1) of equity securities up to an aggregatenominal amount of £506,229; and
4.2 the Directors may, for the purposes of 4.1, impose any limits or restrictions and make anyarrangements which they consider necessary or expedient in relation to treasury shares,fractional entitlements, record dates, legal or practical problems in or under the laws ofany territory or any regulatory body or stock exchange:
4.3 the power granted by this resolution will expire on 31 March 2021 or, if earlier, at theconclusion of the next annual general meeting of the Company (unless previously renewed,varied or revoked by the Company prior to or on such date) except that the Companymay, before such expiry, make offers or agreements which would or might require equitysecurities to be allotted after such expiry and the Directors may allot equity securitiespursuant to any such offer or agreement notwithstanding that the power conferred by thisresolution has expired; and
4.4 this resolution revokes and replaces all unexercised powers previously granted to thedirectors to allot equity securities as if section 561(1) CA 2006 did not apply but withoutprejudice to any allotment of equity securities already made, offered or agreed to be madepursuant to such authorities.
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4. PROPERTY, PLANT AND EQUIPMENT
4.1 The following are summary details of the Existing OTAQ Group’s principal properties:
Company Address
Current rent perannum excl of
VATTenure and
unexpired term Current use
OTAQ GL Suites 5A and 6Crombie Lodge,AberdeenInnovation Park,
Aberdeen AB22 8GU £46,557.00(per annum)
5 years from16 January 2020
Class 4 ofTCPUSO 1997
OTAQ GL European Centrefor MarineBiotechnology,Scottish MarineInstitute,Oban, PA37 1QA
£25(per month)
1 year from1 May 2019
Not specified
OTAQ GL Units 8-3-2, 8-3-4and 8-3-6 HarpersMill, WhiteCross, QuarryRoad,
Lancaster, LA1 4XQ £7,332(per annum)
3 years from31 August 2017
Classes B1, B2 &B8 of
TCPUCO 1987
OTAQ GL Unit 8-4-1Harpers Mill,White Cross,Quarry Road,
Lancaster, LA1 4XQ £3,519.95(per annum)
3 years from1 July 2015 (leaseis being occupiedon a periodictenancy basis)
Classes B1, B2 &B8 of
TCPUCO 1987
OTAQ GL Unit 8-4-11Harpers Mill,White Cross,Quarry Road,
Lancaster, LA1 4XQ £5,990(per annum)
3 years from1 June 2017
Class B2 ofTPCUCO 1987
OTAQ ConnectorsLimited
Unit 8, LightburnTrading Estate,Ulverston,Cumbria
£7,750(per annum)
1 year from7 February 2016(lease is beingoccupied on aperiodic tenancy
basis)
Classes B1 andB8 of
TPCUCO 1987
OTAQ ConnectorsLimited
Unit 9-10,LightburnTrading Estate,Ulverston,Cumbria
£2,125(per annum)
125 years from24 June 1985
Classes B1 andB8 of
TPCUCO 1987
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5. MEMORANDUM AND ARTICLES OF ASSOCIATION
5.1 Pursuant to section 31 of the Companies Act, the Company has unrestricted objects. Set out below isa summary of the provisions of the Articles. A copy of the Articles is available for inspection at theaddress specified in paragraph 2.1 of this Part 14 of this Document.
Articles of Association
5.2 The Articles of Association (which were adopted subject to and conditionally upon Admission takingplace) contain provisions, among others, to the following effect.
5.2.1 Share Capital
The Company’s share capital currently consists of Ordinary Shares. The liability of the membersof the Company is limited to the amount, if any, unpaid on the Ordinary Shares held by them.The Company may issue shares with such rights or restrictions as may be determined byordinary resolution or as the Board shall determine, including shares which are to be redeemed,or are liable to be redeemed at the option of the Company or the holder of such shares. Subjectto Companies Act, whenever the capital of the Company is divided into different classes ofshares, the rights attached to any class of shares in issue may (unless otherwise provided by theterms of issue of the shares of that class) from time to time be varied or abrogated, whether ornot the Company is being wound up, either with the consent in writing of the holders of three-fourths in nominal value of the issued shares of the class (excluding any shares of that classheld as treasury shares) or with the sanction of a special resolution passed at a separate meetingof such holders (but not otherwise).
5.2.2 Voting
The Shareholders have the right to receive notice of, and to vote at, general meetings of theCompany. Each Shareholder who is present in person (or, being a corporation, by representative)at a general meeting on a show of hands has one vote and, on a poll, every such holder who ispresent in person (or, being a corporation, by representative) or by proxy has one vote in respectof every share held by him.
5.2.3 Dividends
The Company may, subject to the provisions of the Companies Act and the Articles, by ordinaryresolution from time to time declare dividends to be paid to members not exceeding the amountrecommended by the Directors. Subject to the provisions of the Companies Act in so far as, inthe Directors’ opinions, the Company’s profits justify such payments, the Directors may payinterim dividends on any class of shares except for shares carrying deferred or non-preferredrights if, at the time of payment, any preferential dividend is in arrears. Any dividend, unclaimedafter a period of 12 years from the date such dividend was declared or became payable shall, ifthe Directors resolve, be forfeited and revert to the Company. The Company does not payinterest on any dividend unless otherwise provided by the terms on which the shares were issuedor the provision of another agreement.
5.2.4 Transfer of Ordinary Shares
Each member may transfer all or any of his shares which are in certificated form by means ofan instrument of transfer in any usual form or in any other form which the Directors mayapprove. Each member may transfer all or any of his shares which are in uncertificated form bymeans of a relevant system in such manner provided for, and subject as provided in, theuncertificated securities rules.
The Board may, in its absolute discretion, refuse to register a transfer of certificated sharesunless:
(a) it is only for one class of share;
(b) it is in favour of no more than four joint transferees;
(c) it is duly stamped or is duly certificated or otherwise shown to the satisfaction of theBoard to be exempt from stamp duty; and
(d) it is delivered for registration to the registered office of the Company (or such other placeas the Board may determine), accompanied (except in the case of a transfer by a person towhom the Company is not required by law to issue a certificate and to whom a certificate
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has not been issued or in the case of a renunciation) by the certificate for the shares towhich it relates and such other evidence as the Board may reasonably require to prove thetitle of the transferor (or person renouncing) and the due execution of the transfer orrenunciation by him or, if the transfer or renunciation is executed by some other person onhis behalf, the authority of that person to do so.
5.2.5 Allotment of share and pre-emption rights
Subject to the Companies Act and the Articles and in accordance with section 551 of theCompanies Act, the Directors shall be generally and unconditionally authorised to exercise foreach prescribed period, all the powers of the Company to allot shares up to an aggregatenominal amount equal to the amount stated in the relevant special resolution passed pursuant tosection 561 of the Companies Act, authorising such allotment.
Under and within the terms of the said authority or otherwise in accordance with section 570 ofthe Companies Act, the Directors shall be empowered during each prescribed period to allotequity securities (as defined in the Companies Act):
(a) in accordance with a rights issue;
(b) otherwise than in connection with a rights issue up to an aggregate nominal amount equalto the amount stated in the relevant ordinary or special resolution passed pursuant tosection 551 of the Companies Act, authorising such allotment.
5.2.6 Directors
Unless otherwise determined by the Company by ordinary resolution, the number of Directors(other than any alternate Directors) shall not be less than two, but there shall be no maximumnumber of Directors.
Subject to the Articles and the Companies Act, the Company may by ordinary resolution appointa person who is willing to act as a Director and the Board shall have power at any time toappoint any person who is willing to act as a Director, in both cases either to fill a vacancy oras an addition to the existing Board.
At the third annual general meeting all Directors shall retire from office and may offerthemselves for re-appointment by the Shareholders by ordinary resolution.
At every subsequent annual general meeting any director who:
(a) has been appointed by the Directors since the last annual general meeting; or
(b) was not appointed or re-appointed at one of the preceding two annual general meetings;
must retire from office and may offer themselves for reappointment by the Shareholders byordinary resolution.
Subject to the provisions of the Articles, the Board, which may exercise all the powers of theCompany, may regulate their proceedings as they think fit. A Director may, and the secretary atthe request of a Director shall, call a meeting of the Directors.
The quorum for a Directors’ meeting shall be fixed from time to time by a decision of theDirectors, but it must never be less than two and unless otherwise fixed, it is two.
Questions arising at a meeting shall be decided by a majority of votes of the participatingdirectors, with each director having one vote. In the case of an equality of votes the chairmanshall have a second or casting vote.
The Directors shall be entitled to receive such remuneration as the Directors shall determine fortheir services to the Company as directors and for any other service which they undertake forthe Company provided that the aggregate fees payable to the Directors must not exceed suchamount as may from time to time be decided by ordinary resolution of the Company. TheDirectors shall also be entitled to be paid all reasonable expenses properly incurred by them inconnection with their attendance at meetings of Shareholders or class meetings, board orcommittee meetings or otherwise in connection with the exercise of their powers and thedischarge of their responsibilities in relation to the Company.
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The Board may, in accordance with the requirements in the Articles, authorise any matterproposed to them by any Director which would, if not authorised, involve a Director breachinghis duty under the Companies Act to avoid conflicts of interests.
A Director seeking authorisation in respect of such conflict shall declare to the Board the natureand extent of his interest in a conflict as soon as is reasonably practicable. The Director shallprovide the Board with such details of the matter as are necessary for the Board to decide howto address the conflict together with such additional information as may be requested by theBoard.
Any authorisation by the Board will be effective only if:
(c) to the extent permitted by the Companies Act, the matter in question shall have beenproposed by any Director for consideration in the same way that any other matter may beproposed to the Directors under the provisions of the Articles;
(d) any requirement as to the quorum for consideration of the relevant matter is met withoutcounting the conflicted Director and any other conflicted Director; and
(e) the matter is agreed to without the conflicted Director voting or would be agreed to if theconflicted Director’s and any other interested Director’s vote is not counted.
5.2.7 General meetings
The Company must convene and hold annual general meetings in accordance with theCompanies Act.
No business shall be transacted at any general meeting unless a quorum is present when themeeting proceeds to business, but the absence of a quorum shall not preclude the choice orappointment of a chairman of the meeting which shall not be treated as part of the business ofthe meeting. Save as otherwise provided by the articles, two Shareholders present in person orby proxy and entitled to vote shall be a quorum for all purposes.
5.2.8 Borrowing powers
Subject to the Articles and the Companies Act, the Board may exercise all of the powers of theCompany to:
(a) borrow money;
(b) indemnify and guarantee;
(c) mortgage or charge;
(d) create and issue debentures and other securities; and
(e) give security either outright or as collateral security for any debt, liability or obligation ofthe Company or of any third party.
5.2.9 Capitalisation of profits
The Directors may, if they are so authorised by an ordinary resolution of the Shareholders,decide to capitalise any undivided profits of the Company (whether or not they are available fordistribution), or any sum standing to the credit of the Company’s share premium account orcapital redemption reserve. The Directors may also, subject to the aforementioned ordinaryresolution, appropriate any sum which they so decide to capitalise to the persons who wouldhave been entitled to it if it were distributed by way of dividend and in the same proportions.
5.2.10 Uncertificated Shares
Subject to the Companies Act, the Directors may permit title to shares of any class to be issuedor held otherwise than by a certificate and to be transferred by means of a relevant systemwithout a certificate.
The Directors may take such steps as it sees fit in relation to the evidencing of and transfer oftitle to uncertificated shares, any records relating to the holding of uncertificated shares and theconversion of uncertificated shares to certificated shares, or vice-versa.
The Company may by notice to the holder of an uncertificated share, require that share to beconverted into certificated form.
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The Board may take such other action that the Board considers appropriate to achieve the sale,transfer, disposal, forfeiture, re-allotment or surrender of an uncertified share or otherwise toenforce a lien in respect of it.
5.2.11 Winding up
If the Company is wound up, the liquidator may, with the sanction of a special resolution of theCompany and any other sanction required by the Companies Act, divide among the Shareholdersin specie any whole or any part of the assets of the Company and may, for that purpose, valueany assets and determine how the division should be carried out as between the Shareholders ordifferent classes of Shareholder. The liquidator may, with the like sanction, vest the whole or anypart of the assets in trustees upon such trusts for the benefit of the members as he with likesanction determines, but no member shall be compelled to accept any assets upon which there isa liability.
5.3 Indemnity
5.3.1 Subject to the provisions of the Companies Act, but without prejudice to any indemnity towhich a Director or other officer may otherwise be entitled, every Director or other officer of theCompany (except auditors) shall, if and to the extent resolved by the Board, be indemnified outof the assets of the Company against any costs, charges, losses, expenses and liabilities incurredby him in the actual or purported execution and/or discharge of his duties and/or the exercise orpurported exercise of his powers and/or otherwise in relation to or in connection with his duties,powers or office including (without limitation) any liability incurred by him in defending anyproceedings, whether civil or criminal, which relate to anything done or omitted or alleged tohave been done or omitted by him as an officer of the Company and in which judgment isgiven in his favour (or the proceedings are otherwise disposed of without any finding oradmission of any material breach of duty on his part) or in which he is acquitted or inconnection with any application in which relief is granted to him by the court from liability fornegligence, default, breach of duty or breach of trust in relation to the affairs of the Company.The indemnity shall not apply to the extent that the Director or other officer recovers fromanother person.
5.3.2 For the avoidance of doubt and in accordance with section 232 of the Companies Act, such anindemnity in favour of a Director shall be constituted as a “qualifying third party indemnityprovision” and shall not provide an indemnity against any liability incurred by a Director to theCompany or to any associated company (as defined in and for the purposes of those sections)and shall not indemnify any Director against any liability incurred by that Director to pay acriminal fine or a non-compliance fine to a regulatory authority.
5.3.3 Subject to the provisions of the Companies Act, the Board may exercise all the powers of theCompany to purchase and maintain insurance for the benefit of a person who is a Director, otherofficer or employee or former employee of the Company or of a Subsidiary Undertaking or of acompany or body in which the Company has an interest, direct or indirect, or of a company orbody which is in any way allied to or associated with the Company and, in the case of aDirector, a director of an associated company of the Company as defined in section 256 of theCompanies Act or a person who is or was a trustee of a retirement benefits scheme or ofanother trust in which a Director, other officer or employee or former employee is or has beeninterested, indemnifying him against any liability for negligence, default, breach of duty orbreach of trust or any other liability which may lawfully be insured against by the Company.
5.3.4 For the purposes of paragraphs 5.3.1 and 5.3.3 above, the terms “Director” or “officer” shallinclude any former Director or other officer of the Company (but not any current or formerauditor).
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6. SUBSTANTIAL SHAREHOLDERS
6.1 Other than the shareholdings of Directors and connected persons which are set out in paragraph 17.3of Part 14 of this Document, the Company is aware that the following persons have at the date of thisDocument an interest in, or will following Admission, be interested in, three (3) per cent. or more ofthe issued Ordinary Share capital of the Company:
—————Note 1 – shows the number of Consideration SharesNote 2 – shows the participation in the PlacingNote 3 – at Admission includes 10,000 Ordinary Shares held by Anita Hyman (Harry Hyman’s wife) and 109,578 Shares held by NexusCentral Management Services Ltd a company controlled by Harry Hyman.Note 4 – excludes warrants to subscribe for 80,000 Ordinary Shares.Note 5 – at Admission 284,000 Ordinary Shares are held by Paul Curtis and 436,887 Ordinary Shares are held by Philippa Curtis.Note 6 – at Admission 563,544 Ordinary Shares are held by David Poutney and 986,202 Ordinary Shares are held by Vivien Poutney.David Poutney is an associate of Dowgate.Note 7 – Euroblue Investments is controlled by Mr Nigel Wray.Note 8 – The holdings of substantial shareholders immediately following Admission are based on the following assumptions: (i) thePlacing having occurred and the Placing Shares having been issued; and (ii) the issue of the Consideration Shares. However, it does notinclude (a) the issue of Ordinary Shares to satisfy the acquisition of the OTAQ GL shares issued pursuant to the exercise of theOTAQ Share Options detailed in paragraph 16 of Part 7 of this Document; and (b) the issue of the Warrant Shares (further details ofwhich are located in paragraph 17 of Part 7 of this Document);
6.2 The Company’s share capital consists of Ordinary Shares with equal voting rights (subject to theArticles). No major Shareholder of the Company has any different voting rights from the otherShareholders.
6.3 Save as disclosed in this Document, there are no persons, so far as the Company is aware, who are orwill be immediately following Admission holding voting rights (within the meaning of Rule 5 of theDisclosure Guidance and Transparency Rules) in three (3) per cent or more of the Company’s issuedOrdinary Share capital, nor, so far as the Company is aware, are there any persons who at the date ofthis Document or immediately following Admission, directly or indirectly, jointly or severally, exerciseor could exercise control over the Company.
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7. CAPITALISATION AND INDEBTEDNESS OF THE COMPANY
7.1 Capitalisation
The following table sets out the capitalisation of the Company, extracted without material adjustmentfrom the Company’s audited accounts as at 30 June 2019.
£’000
Share capital 960Share premium 1,924Other reserve 4
Total capitalisation 2,888
7.2 Indebtedness
The following table sets out the gross and net indebtedness of the Company, extracted withoutmaterial adjustment from the Company’s audited accounts as at 30 June 2019.
£’000
Gross indebtednessTotal current debtGuaranteed —Secured —Unguaranteed and unsecured —
—
Total non-current debtGuaranteed —Secured —Unguaranteed and unsecured —
Total —
£’000
Net liquidityCash 2,841Cash equivalents —
Liquidity 2,841
Current bank debt —Other current financial debt —
Current financial debt —
Net current Financial Indebtedness —
Non-current Bank Loans —Other non-current loans —
Non-current Financial Indebtedness —
Net Financial Indebtedness/Cash 2,841
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The Company had no indirect or contingent indebtedness at 30 June 2019. Since 30 June 2019, therehas been no material change in the capitalisation and indebtedness position of the Company.
8. CAPITALISATION AND INDEBTEDNESS OF THE EXISTING OTAQ GROUP
8.1 Capitalisation
The following table sets out the capitalisation of the Existing OTAQ Group, extracted without materialadjustment from the Existing OTAQ Group’s unaudited management accounts as at 31 January 2020.
£’000
Share capital —Share premium 4,906
Total capitalisation 4,906
8.2 Indebtedness
The following table sets out the gross and net indebtedness of the Existing OTAQ Group, extractedwithout material adjustment from the Existing OTAQ Group’s unaudited management accounts as at31 January 2020.
£’000
Gross indebtednessTotal current debtGuaranteed —Secured —Unguaranteed and unsecured 526
526
Total non-current debtGuaranteed —Secured —Unguaranteed and unsecured —
Total 526
£’000
Net liquidityCash 662Cash equivalents —
Liquidity 662
Current bank debt —Other current financial debt (526)
Current financial debt (526)
Net current Financial Indebtedness 136
Non-current Bank Loans —Other non-current loans —
Non-current Financial Indebtedness —
Net Financial Indebtedness/Cash 136
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The Existing OTAQ Group had no indirect or contingent indebtedness at 31 January 2020. Since31 January 2020, there has been no material change in the capitalisation and indebtedness position ofthe Existing OTAQ Group.
9. SIGNIFICANT CHANGE
9.1 There has been no significant change in the financial performance or trading position of the Companysince 30 June 2019, being the date of the last audited accounts.
9.2 Save as set out in paragraph 2 of Part 8 of this Document (Current Trading and Prospects) there hasbeen no significant change in the financial performance or trading position of the Existing OTAQGroup since 30 September 2019, being the date of the unaudited interim financial information of theExisting OTAQ Group (which are set out in Part 11 of this Document).
10. LITIGATION
10.1 There are no governmental, legal or arbitration proceedings (including any such proceedings which arepending or threatened of which the Company is aware), which during the 12 month period prior tothe publication of this document may have, or have had in the recent past, significant effects on theCompany or the Enlarged Group’s financial position or profitability.
11. MANDATORY BIDS, SQUEEZE OUT AND SELL OUT RULES RELATING TO ORDINARYSHARES
Mandatory Bids
The Takeover Code applies to the Company. Under Rule 9 of the Takeover Code, if:
11.1 a person acquires an interest in shares in the Company which, when taken together with sharesalready held by him or persons acting in concert with him, carry 30% or more of the voting rights inthe Company; or
11.2 a person who, together with persons acting in concert with him, is interested in not less than 30% andnot more than 50% of the voting rights in the Company acquires additional interests in shares whichincrease the percentage of shares carrying voting rights in which that person is interested,
the acquirer and, depending on the circumstances, his concert parties, would be required (except withthe consent of the Panel) to make a cash offer for the outstanding shares in the Company at a pricenot less than the highest price paid for any interests in the Ordinary Shares by the acquirer or hisconcert parties during the previous 12 months.
Squeeze-out rules
Under the Companies Act, if an offeror were to acquire 90% or more of the Ordinary Shares withinthe period specified by the Companies Act, it could then compulsorily acquire the remaining OrdinaryShares. It would do so by sending a notice to the relevant Shareholders telling them that it willcompulsorily acquire their shares and then, six weeks later, it would execute a transfer of theoutstanding shares in its favour and pay the consideration to the Company, which would hold suchconsideration on trust for such Shareholders. The consideration offered to Shareholders whose OrdinaryShares are compulsorily acquired under the Companies Act must, in general, be the same as theconsideration that was available under the relevant takeover offer, unless such Shareholders can showthat the offer value is unfair.
Sell-out rules
The Companies Act also gives minority Shareholders a right to be bought out in certain circumstancesby an offeror who has made a takeover offer. If a takeover offer relates to all of the Ordinary Sharesand at any time before the end of the period within which the offer could be accepted the offerorholds or has agreed to acquire not less than 90% of the Ordinary Shares, any holder of the OrdinaryShares to which such offer relates who has not accepted the offer can by written communication to theofferor require it to acquire those Ordinary Shares. The offeror would be required to give anyShareholder notice of his right to be bought out within one month of that right arising. If aShareholder exercises its right to be bought out, the offeror is bound to acquire the relevant OrdinaryShares on the terms of the offer or on such other terms as may be agreed.
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12. MATERIAL CONTRACTS
The following are all of the contracts (not being contracts entered into in the ordinary course ofbusiness) that have been entered into by the Enlarged Group in the period of two years prior to thedate of this Document which are (i) material to the Company; or (ii) contain obligations orentitlements which are, or may be, material to the Company as at the date of this Document:
12.1 Registrar Agreement
The Company entered into a registrar agreement with the Registrar on 15 November 2018 for aninitial period of 12 months from 6 November 2018. The Registrar is responsible for providing shareregistration services to the Company under the agreement.
The Company agreed to pay the Registrar’s fees in quarterly arrears in respect of its standard service.The basic fee comprises £1.60 per holding per annum (subject to a minimum charge of £550 perquarter). The Registrar may, on 1 April each year, review its fee arrangements and will give theCompany at least one month’s written notice of any alteration so such charges. The Registraragreement is governed by English law.
12.2 2018 Lock-in agreements
Pursuant to lock-in-deeds dated 21 November 2018, each of Harry Hyman, Rodger Sargent, SarahGills and Alexander Hambro undertook not to dispose of any of their interests in their OrdinaryShares for a period of 1 year (except in certain restricted circumstances, including in the event of anintervening court order, a takeover becoming or being declared unconditional, or the death of suchshareholder). The lock-in deed is governed by English law.
12.3 Chile Minority Purchase Agreement
With effect from 21 February 2020 OTAQ GL and Gary McNicol (“GM”) entered into a purchaseagreement pursuant to which OTAQ GL has agreed to purchase GM’s shareholding in OTAQ Chile inconsideration for the issue to GM of 15 new OTAQ GL shares or (if the completion of that agreementoccurs after Admission) 78,270 Ordinary Shares of the Company.
12.4 Warrants
On 21 November 2018 the Company entered into the Warrant Instrument to constitute warrants tosubscribe for up to 1,600,000 Ordinary Shares. In aggregate, 1,600,000 Warrants have been issued toHarry Hyman, Rodger Sargent, Sarah Gills and Alexander Hambro.
12.5 Deed of Waiver and Variation
With effect from 21 February 2020 the Company entered into a Deed of Waiver and Variation (withconsent of the Warrantholders) whereby the Warrant Instrument was amended (subject to Admission)to waive the Exercise Condition in respect of the Warrants and to extend the period of exercise untilthe third anniversary of Admission.
12.6 2018 Dowgate Engagement Letter
Pursuant to an agreement entered into between OTAQ GL and Dowgate dated 1 November 2018,Dowgate agreed to act as financial adviser and sole broker to the Company and use its reasonableendeavours to raise up to £3,000,000. Dowgate received a fee of £60,000 pursuant to the agreement.The agreement is governed by English law.
12.7 2019 Dowgate Engagement Letter
Pursuant to an agreement entered into between the OTAQ GL and Dowgate dated 22 August 2019,Dowgate agreed to act as adviser, placing agent and sole broker to OTAQ GL in respect of thereverse takeover of OTAQ GL by the Company and the Placing. The agreement is governed byEnglish law.
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12.8 2018 Placing Agreement
Pursuant to an agreement entered into between the Company and Dowgate dated 19 November 2018,the Company engaged Dowgate to act as its sole financial adviser and broker following theCompany’s 2018 Admission. Dowgate’s appointment was for an initial term commencing on the dateof the 2018 Admission until the Company’s first acquisition. The agreement contains certain warrantiesand undertakings given by the Company in favour of Dowgate. The agreement is governed by Englishlaw.
12.9 2020 Placing Agreement
On 10 March 2020, the Company, the Directors, Proposed Directors, Dowgate and Jagjit Mundientered into the Placing Agreement, pursuant to which, Dowgate has agreed on the terms set outtherein, to act as the Company’s broker in relation to the Placing and to act as the agent of theCompany in using its reasonable endeavours to procure Placees in respect of the Placing. Inconsideration for Dowgate’s obligations the Company has agreed to pay Dowgate (i) a transactionsupport fee of c. £120,000, (ii) an advisory fee of £72,500 and (iii) £25,000 in respect of theproduction of a research note following Admission. Conditional on Admission Dowgate will receive acommission of 5% of the aggregate value at the placing price of the Placing Shares. The agreementcontains certain warranties and undertakings given by the Company in favour of Dowgate and by theDirectors, Proposed Directors and Jagjit Mundi in favour of Dowgate.
Pursuant to this agreement, each of Alex Hambro, Philip Newby, Jagjit Mundi, George Watt and SarahGills have undertaken not to dispose of any of their interests in their Ordinary Shares for a periodfrom Admission until the date which is 12 months following Admission. Thereafter for a periodexpiring 24 months from Admission they have undertaken only to dispose of their Ordinary Sharesthrough the Company’s brokers so as to maintain an orderly market, (except in certain restrictedcircumstances, including in the event of an intervening court order, a takeover becoming or beingdeclared unconditional, or the death of such shareholder or where Dowgate have otherwise given theirconsent). The agreement is governed by English law.
12.10 OTAQ Offshore Purchase Agreement
On 23 November 2018, OTAQ GL entered into a share purchase agreement whereby it agreed toacquire the entire issued share capital of OTAQ Offshore (formerly named Marinsense Limited) fromHarold Volker Rotsch, Andrew Fraser and Anthony Jakas. The consideration for the acquisition ofOTAQ Offshore was (a) £500,000 in cash (£250,000 on completion and a further £250,000 due on23 November 2020); (b) the issue of 453 OTAQ GL ordinary shares to the selling shareholders ofOTAQ Offshore, (issued as described below), (c) a cash payment due five days after the accounts ofOTAQ Offshore for the period ending 31 March 2020 are finalised calculated as of 50% of theearnings of OTAQ Offshore before interest and taxes in excess of £450,000 up to a maximumpayment of £150,000 and (d) a cash payment of £500,000 less the aggregate market value of theThird Deferred Consideration Shares (as defined below) at 23 November 2021.
The deferred consideration shares referred to in the immediately preceding paragraph were issuable inthree tranches: 151 on completion; 151 on 23 November 2019 (these have been issued) and 151 on23 November 2021 (this last tranche of deferred consideration shares being the “Third DeferredConsideration Shares”). The OTAQ Offshore Purchase Agreement is governed by English law. TheOTAQ Offshore Purchase Agreement has been amended by the OTAQ Offshore Purchase AgreementAmendment described at paragraph 12.15 of this Part 14. The Third Deferred Consideration Shareshave been issued prior to the date of this Document.
12.11 OTAQ Connectors Purchase Agreement
On 29 April 2019, OTAQ GL entered into a share purchase agreement whereby it agreed to acquirethe entire issued share capital of OTAQ Connectors (formerly named Link Subsea Limited) fromDavid Andrew Bowler and Joyce Newton. The consideration for the acquisition of OTAQ Connectorswas £400,000 in cash and the issue of 50 OTAQ GL ordinary shares, payable as to £300,000 in cashon completion and further payments of £50,000 due to the OTAQ Connectors sellers on each of29 April 2020 and 29 April 2021.
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35 OTAQ GL ordinary shares were issued to the OTAQ Connectors sellers on completion. An 8additional ordinary shares due to be issued on 29 April 2020 and 7 additional ordinary shares due tobe issued on 29 April 2021. The OTAQ Connectors Purchase Agreement has been amended by theOTAQ Connectors Purchase Agreement Amendment described at paragraph 12.16 of this Part 14 andthe 8 ordinary shares and 7 ordinary shares due to be issued as above were issued prior to the date ofthis Document. The OTAQ Connectors Purchase Agreement is governed by English Law.
12.12 OTAQ Purchase Agreements
On 10 March 2020, the Company and the Sellers entered into a share purchase agreement (the “MainSPA”) pursuant to which the Company acquired 3,552 OTAQ GL shares (representing approximately86% of the issued share capital of OTAQ GL) from OTAQ GL shareholders who are party to thatagreement (the “Signing Shareholders”). This therefore enabled OTAQ GL to invoke the provisionsof the drag-along mechanism in Article 30 of the articles of association of OTAQ GL (the “DragAlong Process”). That Drag Along Process involves the issue of a drag-along notice to the remainingOTAQ GL shareholders who are not Signing Shareholders (“Dragged Shareholders”). Pursuant to theDrag Along Process after the expiry of 7 days, OTAQ GL is entitled to appoint someone to sign anagreement (the “Dragged Shareholder Purchase Agreement”) and any necessary transfers to transferany shares in OTAQ GL held by the Dragged Shareholders. Any such agreement will be subject toAdmission.
OTAQ GL therefore proposes, pursuant to the Drag Along Process, to sign the Dragged ShareholderPurchase Agreement whereby the Company through the drag along mechanism contained in thearticles of association of OTAQ GL will acquire the remaining 576 OTAQ GL shares (representingapproximately 14% of the issued share capital of OTAQ GL). Following completion of the DragAlong Process, the Company will hold 100% of the issued share capital of OTAQ GL.
The Main SPA and the Dragged Shareholder Purchase Agreement are together the “OTAQ PurchaseAgreements”. Under each of the OTAQ Purchase Agreements: (i) the consideration will be satisfiedby the allotment by the Company to the relevant Sellers of 5,218 Ordinary Shares for each OTAQ GLshare transferred, (ii) there are certain warranties granted by the Sellers in favour of the Company,(iii) each Seller undertakes not to dispose of the Ordinary Shares issued to them pursuant to suchagreements for the period from Admission to the earlier of 150 days after Admission and thepublication of the Company’s preliminary results for the period to 31 March 2020. Each of the OTAQPurchase Agreements is governed by English law.
12.13 Jagjit Mundi Purchase Agreement
On 10 March 2020, the Company and Jagjit Mundi (the “Seller”) entered into a purchase agreementpursuant to which the Company has agreed to acquire from the Seller the shares in OTAQ GL to beissued to the Seller pursuant to the option arrangements described in paragraph 16 of Part 7 of thisDocument, (as and when such options are exercised by the Seller) in consideration of the issue to theSeller by the Company of 5218 Ordinary Shares for each OTAQ GL share transferred.
12.14 Phil Newby Purchase Agreement
On 10 March 2020, the Company and Phil Newby (the “Seller”) entered into a purchase agreementpursuant to which the Company has agreed to acquire from the Seller the shares in OTAQ GL to beissued to the Seller pursuant to the option arrangements described in paragraph 16 of Part 7 of thisDocument, (as and when such options are exercised by the Seller) in consideration of the issue to theSeller by the Company of 5218 Ordinary Shares for each OTAQ GL share transferred.
12.15 OTAQ Offshore Purchase Agreement Amendment
On 4 March 2020, OTAQ GL, Harold Volker Rotsch, Andrew Fraser and Anthony Jakas (the“Offshore Sellers”) entered into an amendment to the OTAQ Offshore Purchase Agreement (describedat paragraph 12.10 of this Part 14) in terms of which the parties agreed that 151 ordinary shares ofOTAQ GL be issued (subject to Admission) to the Offshore Sellers in satisfaction of the obligation toissue the Third Deferred Consideration Shares. It is proposed that these shares are also acquired by theCompany pursuant to the OTAQ Purchase Agreements on the same basis as the acquisition of sharesfrom other OTAQ GL Sellers.
On 9 March 2020, OTAQ GL, Andrew Bowler and Joyce Newton entered into an amendment to theOTAQ Connectors Purchase Agreement (described at paragraph 12.11 of this Part 14) in terms ofwhich the parties agreed that 15 ordinary shares of OTAQ GL be issued (subject to Admission) toJoyce Newton in satisfaction of the obligation to issue the 15 deferred consideration shares referred toin paragraph 12.11 of this Part 14. It is proposed that these shares are also acquired by the Companypursuant to the OTAQ Purchase Agreements on the same basis as the acquisition of shares from otherSellers.
13. CONSENTS AND RELATED MATTERS
13.1 RSM Corporate Finance LLP of 25 Farringdon Street, London EC4A 4AB has given and notwithdrawn its written consent to the inclusion in this Document of its Accountant’s Report in Part 9of this Document, its reports on the pro forma statements of net assets in Part 10 of this Documentand its report on the unaudited Interim Financial Information in Part 11 of this Document, and thereferences to them and to their name, in the form and context in which they appear and hasauthorised the contents of those parts of this document which comprise its reports and its letters forthe purposes of PR 5.3.3R(2)(f) of the Prospectus Rules.
14. ADMISSION TO TRADING, SETTLEMENT AND DEALING ARRANGEMENTS
Application has been made for the New Ordinary Shares to be admitted to the Official List, by way ofa Standard Listing, and to trading on the Main Market. Dealings in the Ordinary Shares are expectedto commence at 8 a.m. on 31 March 2020. No application has or will be made for the ExistingOrdinary Shares, the New Ordinary Shares or any Ordinary Shares to be admitted to trading or to belisted on any other stock exchange.
No temporary documents of title will be issued. All documents sent by or to an Investor will be sentby post at the Investor’s own risk. Pending the dispatch of definitive share certificates, instruments oftransfer will be certified against the register of members of the Company.
15. DILUTION
Shareholdings immediately prior to Admission will be diluted by approximately 400% as a result ofthe issue of the New Ordinary Shares.
16. STATUTORY AUDITORS
16.1 The accounts of the Existing OTAQ Group for the year ended 31 March 2017 were audited by CWRLimited of Mannin Way, Lancaster Business Park, Caton Road, Lancaster, LA1 3SW. The accounts ofthe Existing OTAQ Group for the years ended 31 March 2018 and 31 March 2019 were audited byRSM UK Audit LLP of 3 Hardman Street, Manchester, M3 3HF. The accounts of OTAQ Offshore forthe year ended 31 March 2019 were audited by RSM UK Audit LLP of 3 Hardman Street,Manchester, M3 3HF, with no statutory auditor appointed in preceding periods. The accounts ofOTAQ Connectors for the three periods ended 31 March 2019 were unaudited as no statutory auditorwas appointed. The accounts of Hertsford have been audited, since incorporation, byHaysmacintyre LLP of 10 Queen Street Place, London EC4R 1AG.
17. EMPLOYMENT INVOLVEMENT AND REMUNERATION
17.1 Jagjit Mundi and Philip David Newby were granted the OTAQ Share Options to subscribe for OTAQGL shares. Details of these arrangements are set out in paragraph 16 of Part 7 of this Document.
After Admission, it is proposed that the Company will create a new share incentive plan pursuant towhich options shall be granted for employees of the Enlarged Group to subscribe for Ordinary Shares(the “Plan”). The Plan shall require shareholder approval which will be sought in due course afterAdmission. No shares shall be allotted pursuant to the Plan prior to the Company obtainingshareholder approval.
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Remuneration arrangements
17.2 Directors’ letters of appointment
Each of the Directors were appointed as Non-Executive Directors by the Company pursuant to lettersof appointment dated 21 November 2018 for an initial period of 12 months and thereafter subject totermination by either party on three months’ notice. Save in the case of Mr Rodger Sargent, the Non-Executive Directors each agreed to not be remunerated until such time as the Company makes anacquisition. Mr Sargent was paid a one-off fee of £20,000 by the Company for his services to theCompany prior to, and in preparation for the 2018 Admission. Each of the Directors agreed to commitan equivalent of at least one day a month to the Company. The Directors are not entitled to any otherbenefits other than the reimbursement of their reasonable expenses. The letters of appointment aregoverned by English law.
The appointments of Harry Hyman and Rodger Sargent will be terminated on Admission. AlexanderHambro and Sarah Gills will both remain as an independent, non-executive directors of the Companyafter Admission however each will enter into a new letter of appointment (further details of which arenoted at paragraph 17.3 of this Part 14. Alexander Hambro will be the non-executive Chairman afterAdmission.
Rodger Sargent has been paid a further fee of £20,000 in connection with the Acquisition.
17.3 The Proposed Directors
In relation to the last full financial year for OTAQ GL, Philip David Newby was paid a total of£120,000.
Simon Walters will be appointed as a director of the Company immediately prior to Admission. SimonWalters’ services are provided by Headline FD Limited (“Headline”) pursuant to the terms of theHeadline Engagement Letter. From 29 November 2019 (being the date of the Headline EngagementLetter) to Admission in relation to services provided to OTAQ GL, Headline has invoiced OTAQ GLthe total sum of £42,500 (plus VAT).
George Watt will be appointed as a director of the Company immediately prior to Admission.
Alexander Hambro and Sarah Gills have not been remunerated since the date of their appointments asdirectors of the Company. Details of their proposed remuneration arrangements are set out below.
In addition to his remuneration referred to above, Philip David Newby was granted certain of theOTAQ Share Options to subscribe for OTAQ GL shares. Details of these arrangements are set out inparagraph 16 of Part 7 of this Document.
Proposed Directors’ Service Contracts / Letters of appointment
Philip David Newby
Philip Newby will enter into a new service contract on Admission pursuant to which he will beemployed as the Chief Executive Officer of the Enlarged Group.
Under the terms of his service contract, Mr Newby is required to dedicate 37.5 hours per week toworking on the Enlarged Group’s matters, plus any additional time as may be necessary for the properperformance of his duties. He is not entitled to receive any additional remuneration for additionalhours worked.
Mr Newby will be paid an initial salary of £150,000 per annum which shall be subject to annualreview by the Board’s remuneration committee. Mr Newby is entitled to a bonus and it is at theabsolute discretion of the Board’s remuneration committee to set the amount of such a bonus. He isalso entitled to certain other employee benefits such as entitlement to private medical insurance and acar allowance of up to £9,000 per annum.
Mr Newby’s employment will have no minimum term and must be terminated by either party givingwritten notice to the other of not less than 6 months. In addition, Mr Newby’s employment may beterminated without notice in certain circumstances. The service contract contains garden leaveprovisions which can be utilised in the event that Mr Newby’s employment is terminated.
The service contract also contains confidentiality, non-competition and non-solicitation provisionseffective for a period of 12 months following termination of Mr Newby’s employment.
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Simon Walters
The provision of Simon Walters’ services will continue to be provided through the HeadlineEngagement Letter.
Alexander Hambro, George Watt and Sarah Gills (the “NEDs”)
Each of the NEDs will enter into a letter of appointment on Admission in respect of theirappointments as non-executive directors of the Company.
Alexander Hambro’s existing letter of appointment will be terminated at Admission and will enter intoa new appointment letter. He will be paid £30,000 per annum pursuant to the terms of his letter ofappointment.
Sarah Gills’ existing letter of appointment will be terminated at Admission and will enter into a newappointment letter. She will be paid £30,000 per annum pursuant to the terms of her letter ofappointment.
George Watt will be paid £30,000 per annum pursuant to the terms of his letter of appointment.
Each of the NEDs’ letters of appointment will be governed by English Law.
Interests of the Directors and the Proposed Directors
The interests of the Directors and the Proposed Directors in the share capital of the Company at thedate of this Document and immediately following Admission are as follows:
—————Note 1 – shows the number of Consideration Shares that the Director and his / her associates will receive.Note 2 – shows the participation of the Director in the Placing.Note 3 – at Admission includes 10,000 Ordinary Shares held by Anita Hyman (Harry Hyman’s wife) and 109,578 Ordinary Shares heldby Nexus Central Management Services Ltd a company controlled by Harry Hyman.Note 4 – excludes warrants to acquire 80,000 Ordinary Shares.Note 5 – at Admission includes 349,607 Ordinary Shares held by Diane Newby (Phil Newby’s wife)Note 6 – excludes OTAQ Share Options held by Phil Newby which if exercised would result in the issue of a further 1,043,400 OrdinaryShares.Note 7 – excluding the OTAQ Share Options and the Ordinary Shares to be issued pursuant to the Warrants.
18. EXPENSES AND NET PROCEEDS
18.1 The expenses of the Placing will be borne by the Company in full and no expenses will be chargedto any Investor by the Company.
18.2 These expenses (including commission fees and expenses payable under the Placing Agreement, stampduty registration, listing, admission fees, printing, advertising and distribution costs and professionaladvisory fees, including legal fees, and any other applicable expenses) are not expected to exceed£1.0 million excluding VAT representing approximately 67% of the gross proceeds of the Placing ofapproximately £1.5 million.
18.3 The total Net Placing Proceeds on the basis set out above are approximately £0.5m.
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19. INFORMATION ON THE CONCERT PARTY
19.1 For the purposes of the Takeover Code, members of the Concert Party and reasons for theirmembership of the Concert Party are set out below. Their respective interests in the Companyfollowing the Acquisition and Admission and based on the Assumptions, are as follows:
Note 1: includes any Ordinary Shares subscribed as part of the Placing.
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19.2 The maximum percentage holding of the Concert Party has been calculated on the following basis:
Ordinary Shares in issue at Admission 30,548,599OTAQ Option Shares issued in full 1,481,912Issue of Warrant Shares to relevant Concert Party members 240,000
Total number of Ordinary Shares 32,350,511
Further Information on members of the Concert Party
19.3 Jagjit Mundi is the chairman of OTAQ GL. He will resign from the board of OTAQ GL with effectfrom completion of the Acquisition. He is a leadership and systems coach and qualified lawyer. Priorto his coaching career, he was an investment banker and broker at both Investec and Numis. NadjaMundi, Samuel Mundi and Hannah Mundi are close relatives of Mr Mundi. Mr Mundi has outstandingOTAQ Share Options that may be exercised at any time after Admission and will on exercise result inthe issue of up to 438,312 Ordinary Shares.
19.4 Philip Newby is a director and the chief executive officer of OTAQ GL. His biography is set out inparagraph 12 of Part 7 of this Document. Diane Newby and Tom Newby are close relatives ofMr Newby. Mr Newby has outstanding OTAQ Share Options that will on exercise result in the issueof up to 1,043,600 Ordinary Shares, of which 584,416 may be exercised at any time after Admission,a further 229,592 if the market price of Ordinary Shares exceeds 72.8p per share before 31 March2021 and a further 229,592 Ordinary Shares if the market price of Ordinary Shares exceeds £1.093before 31 March 2022.
19.5 Simon Walters will become the Finance Director of the Company immediately prior to Admission.Mr Walters does not have any shareholding in OTAQ GL.
19.6 Peter Robinson is the founder of OTAQ GL. He resigned as a director in April 2018 but hascontinued to consult for the Company. Deborah Robinson is a close relative of Mr Robinson and aformer director who resigned in June 2014.
19.7 Dr Harald Rotsch is the former major shareholder in OTAQ Offshore and a consultant to OTAQ GL.On 9 March 2020 Dr Rotsch was issued a further 135 OTAQ shares relating to the acquisition ofOTAQ Offshore by OTAQ GL.
19.8 Chris Hyde is an employee-shareholder of OTAQ GL and a director of OTAQ Aquaculture Limited.
19.9 Dowgate is authorised and regulated by the FCA. It provides corporate broking and wealthmanagement services. Dowgate acts as financial adviser to OTAQ GL and as corporate broker to theCompany. 3B Capital Limited is the controller of Dowgate and David Poutney and James Serjeant(see 19.10 and 19.11 below) are directors of both Dowgate and 3B Capital Limited. Dowgate does nothave an interest in Ordinary Shares or OTAQ GL shares.
19.10 David Poutney is the Chief Executive of Dowgate. Vivienne Poutney, Alice Poutney Wall (who is alsoan employee of Dowgate), Kieran Wall and Madeleine Poutney are close relatives of David Poutney.
19.11 James Serjeant is Head of Corporate Broking at Dowgate. Nigel Gaymer, Mrs Kirstin Gaymer,Dr Jonathan Serjeant, Brenda McKenzie, Peter McKenzie and Ms Sammy French are close relativesof, or otherwise connected to, James Serjeant.
19.12 Paul Richards is a Director of and Head of Research at Dowgate.
19.13 Harry Hyman is the current Chairman of the Company and a director of Nexus Central ManagementServices Limited. Mr Hyman holds warrants over 80,000 Consolidated Shares at an exercise price of50p per Share which, provided the Company waives the Warrant Condition, are exercisableimmediately upon Admission. Mr Hyman will resign as a director of the Company on Admission.
19.14 Adam Mark Hyman, Anita Hyman, Sarah Emily Hyman are close relatives of Harry Hyman and arealso members of the Concert Party. Melanie Sarah Meads is also a member of the Concert Party dueto being a connected party of Harry Hyman.
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19.15 Sarah Gills is a Director of the Company and Sherron Hemsley and CTG Investment Limited, whoare members of the Concert Party, are closely related to Sarah Gills. Sarah Gills holds Warrants over80,000 Consolidated Shares at an exercise price of 50p per Share which, provided the Companywaives the Warrant Condition, are exercisable immediately upon Admission.
19.16 Rodger Sargent is a current Director and Company Secretary of the Company. He will resign onAdmission. David Sargent, who is also a member of the Concert Party, is a close relative of RodgerSargent. Mr Rodger Sargent holds Warrants over 80,000 Consolidated Shares at an exercise price of50p per Share which, provided the Company waives the Warrant Condition, are exercisableimmediately upon Admission.
Arrangements
19.17 Neither the Concert Party members, nor any persons acting in concert with them, have entered intoany agreement, arrangement or understanding (including any compensation arrangement):
19.17.1 which has any connection with or dependence upon the outcome of the Acquisition, theWaiver Proposal, the passing of the Resolutions, the Placing and Admission (the“Proposals”); or
19.17.2 for the transfer of Ordinary Shares acquired under the Proposals.
19.18 Save for the OTAQ Purchase Agreements described in paragraph 12.12 of Part 14 of this Document,the Independent Director is not aware of any agreement, arrangement or understanding having anyconnection with or dependence upon the Proposals between the Concert Party and any personinterested or recently interested in Ordinary Shares.
Material Contracts of the Concert Party
19.19 Except for the OTAQ Purchase Agreements described in paragraph 12.12 of Part 14 of this Document,there are no material contracts (other than contracts entered into in the ordinary course of business)entered into between any member of the Concert Party in connection with the Company within thetwo years immediately preceding the date of this Document.
Concert Party Dealings
19.20The Concert Party has not dealt in Ordinary Shares during the Disclosure Period.
20. RELATED PARTY TRANSACTIONS
20.1 From 22 June 2018 (being the Company’s date of incorporation) up to and including the date of thisDocument, the Company has not entered into any related party transactions other than as set outbelow:
Directors’ letters of appointment
Each of Rodger Sargent, Harry Hyman, Alexander Hambro and Sarah Gills were appointed as non-executive directors of the Company pursuant to letters of appointment dated 21 November 2018 for aninitial period of 12 months and thereafter subject to termination by either party on three months’written notice. it was agreed that each of the non-executive directors other than Rodger Sargent wouldnot be remunerated until such time as an acquisition is completed. At the 2018 Admission, RodgerSargent was paid a one-off fee of £20,000 by the Company for his services to the Company prior to,and in preparation for the 2018 Admission. Rodger Sargent has been paid a fee of £20,000 for hisservices in relation to the acquisition of OTAQ GL.
Proposed directors’ letters of appointment
Philip Newby, Simon Walters and George Watt will be appointed as Directors of the Company onAdmission. Simon Walters and George Watt shall each enter into letters of appointment for an initialperiod of 12 months from the date of Admission. The directorship services of Simon Walters areprovided by Headline in accordance with an engagement letter among Headline FD Limited andOTAQ Group Limited dated 29 November 2019 (the “Headline Engagement Letter”). Philip Newbywill enter into a new service agreement with the Company. The existing directors’ letters ofappointment for Alexander Hambro and Sarah Gills will be terminated on Admission and each will
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enter into a new letter of appointment in respect of their non-executive directorships of the Company.Further details of the Proposed Directors’ service contracts and letters of appointment are set out inparagraph 17.3 of Part 14 of this Document.
Directors’ incentives
The Warrants described in paragraph 17 of Part 7 of this Document and the Options described inparagraph 16 of Part 7 of this Document are the only incentivisation arrangements in place in respectof each of the Directors and the Proposed Directors.
21. CONFLICTS OF INTEREST
There are no conflicts of interest between the administrative, management, supervisory bodies and/orsenior management of the Enlarged Group, their respective duties to the Company and the EnlargedGroup, and their private interests, save as disclosed in paragraphs 17 (in particular paragraph 17.3 inrelation to ‘Interests of the Directors and Proposed Directors’), 19 (in particular paragraphs 19.1 and19.3-19.18 relating to members of the Concert Party and ‘Further Information on members of theConcert Party’) and 20 (which relates to ‘Related Party Transactions’ whereby details of Directors’ andProposed Directors’ letters of appointment and engagements with the Company and the ExistingOTAQ Group are detailed together with information on ‘Directors’ Incentives’) of this Part 14.
22. WORKING CAPITAL
The Company is of the opinion that the working capital available to the Enlarged Group, taking intoaccount the Net Placing Proceeds, is sufficient for the Enlarged Group’s present requirements, that isfor at least the 12 months from the date of this Document.
23. CURRENT AND FORMER DIRECTORSHIPS OF DIRECTORS
23.1 Harry Hyman
Business address: c/o Fladgate LLP, 16 Great Queen Street, London WC2B 5DG
Current Directorships and partnerships Former directorships and partnerships
AHG (2006) LimitedAnchor Meadow LimitedApollo (Ipswich) LimitedCarden Medical Investments LimitedChelmsley Associates LimitedConscious Chocolates LimitedCrestdown LimitedFortissimo Group LimitedGracemount Medical Centre LimitedHav 2018 LimitedHealth Investments LimitedHealthinvestor Asia LimitedHealthinvestor LimitedHMC Estates LimitedHMC Estates Holdings LimitedInvestor Publishing LimitedJellia Holdings Limited (registered in Ireland)Leighton Health LimitedMotorstep LimitedNexus Central Management Services LtdNexus Code LimitedNexus Code New York LimitedNexus Consulting (UK) LimitedNexus Corporate Finance Ii LimitedNexus Corporate Finance LimitedNexus Fund Management LimitedNexus General Partner LimitedNexus Group Holdings Limited
Current Directorships and partnerships Former directorships and partnerships
Primary Heath Investment Properties (No.8) LimitedPrimary Heath Investment Properties (No.9) LimitedPrimary Heath Investment Properties LimitedPrimary Health Investment Properties (Sutton)LimitedPrimary Health Properties IcavPrimary Health Properties PlcQ1 Care LimitedSummit Properties LimitedThe Healthcare Reit LimitedThe Opera Awards FoundationThe Opera Awards LimitedThe Raw Chocolate Company LimitedVintage Wine Sellers LimitedWhite Horse Centre limitedWincanton Healthcare Limited
23.2 Rodger Sargent
Business address: c/o Fladgate LLP, 16 Great Queen Street, London WC2B 5DG
Current Directorships and partnerships Former directorships and partnerships
Baskerville Capital plcNubem Novem Ltd
Audioboom Group PlcBlackbottle LimitedBe Heard Group plcBigblu Broadband plcContentment LimitedCurve Public Relations LimitedEntertainment AI plcS4 Capital PlcHydrodec Group PlcLitebulb Group LimitedNanotether Discovery Science Limited
Rodger Sargent was a director of Contentment Limited, having resigned on 27 July 2016. Thecompany was placed into creditor’s voluntary liquidation and winding up commenced on 27 July2016. The company was dissolved on 7 May 2018.
23.3 Sarah Gills
Business address: c/o Fladgate LLP, 16 Great Queen Street, London WC2B 5DG
Current Directorships and partnerships Former directorships and partnerships
Palladio Property LtdHemsley-Gills LimitedSolent Capital Partners Ltd
N/A
23.4 Alexander Hambro
Business address: c/o Fladgate LLP, 16 Great Queen Street, London WC2B 5DG
Current Directorships and partnerships Former directorships and partnerships
Crescent Capital N1 LimitedCrescent Capital II GP LimitedCrescent Capital III GP LimitedFalanx Group LimitedFirst Magazine Limited
Aldersgate House Ltd (previously Crescent CapitalIII B GP Limited)Band-X LimitedBACIT (UK) LimitedBapco Closures Holdings Limited
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Current Directorships and partnerships Former directorships and partnerships
Halkin Development LimitedHF Partnership LLPJudges Scientific PLCOctopus Apollo VCT PLCTarga Fund LimitedTime Partners LimitedWelbeck Ventures LtdWelbeck Capital Partners LLPWhitley Asset Management Limited
Bapco Closures Research LimitedBenchmark Holdings PLCChloride Extraction Technologies LtdCubo Communications Group plcDixton FarmDomus Capital LimitedDumbleton FarmEssencedale LimitedEuropean Software Publishing LimitedESP Publishing LimitedFerranti IT LimitedG & H Kapitalpartner AGHAT Holding Company LimitedHATT III General Partner LimitedHazel Renewable Energy VCT2 plcHazel Targa VCT PLCHAMNIV (GP) LimitedHEV (Holdings) LimitedHEV LimitedInvestec Group Investments (UK) LimitedInvestec Private Equity IncInvestec Securities LimitedInvestec Technology Trust LimitedInvestec Investment Trust PLCInvestec Private Equity LimitedI Value PlcIzon Science LtdIzon Science LtdJanna Systems UK LimitedLeyfield Investments LimitedOctopus Apollo VCT PLC (in liquidation)Octopus Apollo VCT 3 PLCOctopus Apollo VCT 4 PLCProlake LimitedRNPFN Pension Management LimitedTop Technology LimitedTrans-America Investment Company LimitedWelbeck Investment Partners Member LtdWelbeck Investment Partnership LLP
23.5 Philip Newby
Business address: 8-3-4 Harpers Mill South Road, White Cross, Lancaster, LA1 4XF
Current Directorships and partnerships Former directorships and partnerships
Business address: 8-3-4 Harpers Mill South Road, White Cross, Lancaster, LA1 4XF
Current Directorships and partnerships Former directorships and partnerships
Headline FD LimitedThe Restaurant Club Limited
FDS Recruit LimitedFlexible Director Solutions LimitedFlexible Directors LimitedFlexible Finance Directors LimitedFlexible HR Directors LimitedFlexible IT Directors LimitedFlexible Marketing Directors LimitedFlexible Sales Directors LimitedHR Director Solutions LimitedIT Director Solutions LimitedLegal Director Solutions LimitedTPS MA Old Marylebone LimitedTPZ Dez Retentions Limited
23.7 George Watt
Business address: 8-3-4 Harpers Mill South Road, White Cross, Lancaster, LA1 4XF
Current Directorships and partnerships Former directorships and partnerships
SpaceandPeople Plc Altissimo Music LimitedDeltadna LimitedGinger Television Productions LimitedGrampian Television LimitedLocal Television Aberdeen LimitedLocal Television Ayr LimitedLocal Television Dundee LimitedLocal TV News LimitedPeopleschampion.Com LimitedRise & Shine (Television) LimitedScottish News Network LimitedSKA Ginger Productions LimitedSolutions TV LimitedSTV Central LimitedSTV Drama Productions LimitedSTV ELM LimitedSTV Group PlcSTV News Services LimitedSTV North LimitedSTV Out Of Home LimitedSTV Productions LimitedSTV Publishing LimitedSTV Services LimitedSTV Sip Trustees LimitedSTV Television LimitedSTV TV limitedThat’s Entertainment Network LimitedThe Ginger Media Group Limited
23.8 Save as disclosed in this paragraph 23, none of the Directors or Proposed Directors:
23.8.1 has any convictions in relation to fraudulent offences for at least the previous five yearsfrom the date of this Document;
23.8.2 has been made bankrupt or has made an individual voluntary arrangement with creditors orsuffered the appointment of a receiver over any of his asset;
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23.8.3 has been a director of any company in at least the previous 5 years from the date of thisDocument which, whilst he was such a director or within 12 months after his ceasing tobe such a director, was put into receivership, compulsory liquidation, creditors’ voluntaryliquidation, administration, company voluntary arrangement or any composition orarrangement with the company’s creditors generally or with any class of creditors of anycompany or had an administrator or an administrative or other receiver appointed;
23.8.4 has been a partner in any partnership in at least the previous 5 years from the date of thisDocument which, whilst he was a partner, or within 12 months after his ceasing to be apartner, was put into compulsory liquidation or had an administrator or an administrative orother receiver appointed or entered into any partnership voluntary arrangement;
23.8.5 has in at least the previous 5 years from the date of this Document had an administrativeor other receiver appointed in respect of any asset belonging either to him or to apartnership of which he was a partner at the time of such appointment or within the12 months preceding such appointment; or
23.8.6 has received any official public incrimination and/or sanctions involving such persons bystatutory or regulatory authorities (including recognised professional bodies) or has everbeen disqualified by a court from acting as a member of the administrative, management orsupervisory bodies of an issuer or from acting in the management or conduct of the affairsof any issuer for at least the previous five years from the date of this Document.
23.9 There is no family relationship between any of the Directors and/or Proposed Directors.
24. GENERAL
24.1 Copies of the following documents may be inspected at the registered office of the Company duringusual business hours on any day (except Saturdays, Sundays and public holidays) from the date of thisDocument until the Placing closes:
24.1.1 the Articles;
24.1.2 the Accountants’ Reports from RSM Corporate Finance LLP on the historical financialinformation on the Existing OTAQ Group, OTAQ Connectors and OTAQ Offshore as setout in Part 9 of this Document;
24.1.3 the report from RSM Corporate Finance LLP on the Pro Forma Financial Information ofthe Enlarged Group set out in Part 10 of this Document;
24.1.4 the report from RSM Corporate Finance LLP on the Unaudited Interim FinancialInformation set out in Part 11 of this Document;
24.1.5 the letters of appointment/service contracts entered into between the Company and theDirectors; and
24.1.6 this Document.
24.2 The above documents are available at the Company’s website: http://hertsford-capital.com.
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PART 15
DEFINITIONS
“2018 Admission” means the Admission of the Ordinary Share capital of the Company byway of a Standard Listing and to trading on the London StockExchange’s Main Market for listed securities on 26 November 2018 andsuspended on 12 February 2020;
“Admission” means the re-admission of the Existing Ordinary Shares and theadmission of the New Ordinary Shares to the Official List by way of aStandard Listing and to trading on the London Stock Exchange’s MainMarket for listed securities;
“AIM” means the Alternative Investment Market of the London StockExchange;
“Articles of Association” or“Articles”
means the articles of association of the Company in force from time totime;
“Acquisition” means the acquisition from the Sellers of the entire share capital ofOTAQ GL pursuant to the OTAQ Purchase Agreements;
“Business Day” means a day (other than a Saturday or Sunday) on which banks are openfor business in London;
“certificated” or “in certificatedform”
means an Ordinary Share, title to which is recorded in the relevant shareregister as being held in certificated form (that is, not in CREST);
“Chairman” means Alexander Robert Hambro, or the Chairman of the Board fromtime to time;
“Circular” means the circular sent to Shareholders on 10 March 2020 containingdetails of the Acquisition;
“Companies Act” means the Companies Act 2006;
“Company” or “Hertsford” means Hertsford Capital plc (to be renamed OTAQ plc);
“Completion” means completion of the Acquisition;
“Concert Party” means the concert party for the purposes of the Takeover Code;
“Consideration Shares” means the 21,539,904 Ordinary Shares of 15p each to be issued andallotted to the Sellers pursuant to the Acquisition;
“Consolidation” means the consolidation of the Ordinary Shares of 3p each as at the dateof this Document into Ordinary Shares of 15p each, pursuant to theConsolidation Resolution;
“Consolidation Resolution” means the resolution contained in the Notice of General Meeting toconsolidate every five ordinary shares of 3p each in the capital of theCompany into one ordinary share of 15p;
“CREST” or “CREST System” means the computer-based system (as defined in the CRESTRegulations) operated and administered by Euroclear enablingsecurities to be evidenced otherwise than by certificates andtransferred otherwise than by written instruments;
“CREST Regulations” means The Uncertified Securities Regulations 2001 (SI 2001 3755), asamended;
“Directors” or “Board” or “Boardof Directors”
means the current directors of the Company, whose names appear inPart 4 of this Document, or the board of directors from time to time ofthe Company, as the context requires, and “Director” is to be construedaccordingly;
“Disclosure Period” means the period commencing on 12 February 2019 and ending on12 February 2020;
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“Document” or “Prospectus” means this Prospectus;
“Dowgate” means Dowgate Capital Limited;
“Drag Along Process” has the meaning in paragraph 12.12 of Part 14 of this Document;
“Dragged Shareholders” has the meaning in paragraph 12.12 of Part 14 of this Document;
“Dragged Shareholder PurchaseAgreement”
means the agreement to be entered into between the Company and theDragged Shareholders in relation to the acquisition by the Company ofthe Shares of OTAQ GL held by them, pursuant to the Drag AlongProcess as described in paragraph 12.12 of Part 14 of this Document;
“EEA” means the European Economic Area;
“EEA Member States” means the member states of the EU and the European Economic Area,each an “EEA Member State”;
“Enlarged Group” means the Company and its subsidiaries (including OTAQ GLfollowing the Acquisition);
“Enlarged Share Capital” means the share capital of the Company immediately following the issueof the New Ordinary Shares;
“EU” means the Member States of the European Union;
“Euroclear” means Euroclear U.K. & Ireland Limited;
“Existing OTAQ Group” means OTAQ GL and its subsidiaries as listed in paragraph 2.12 ofPart 14 of this Document;
“Existing Ordinary Shares” means the 32,000,001 Ordinary Shares of 3p each in issue as at the dateof this Document;
“FCA” means the UK Financial Conduct Authority;
“Form of Proxy” means the form of proxy for use at the General Meeting;
“Founder Shares” means the 2,000,001 Ordinary Shares issued to the Founders onincorporation of the Company pursuant to subscription letters dated23 July 2018 and 28 October 2018;
“Founders” means Harry Abraham Hyman, Rodger David Sergeant, Sarah EmilyGills and Alexander Robert Hambro;
“FSMA” means the UK Financial Services and Markets Act 2000, as amended;
“general meeting” means a meeting of the Shareholders of the Company or a class ofShareholders of the Company (as the context requires);
“General Meeting” means the general meeting of the Company to be held at the offices ofFladgate LLP, 16 Great Queen Street, London, WC2B 5DG at 10am on27 March 2020;
“Group” means the Company or, if the context so requires, a company, itssubsidiary undertakings and any holding company (as both are definedin the Companies Act from time to time and references to “member ofthe Group” shall be construed accordingly;
“IFRS” means International Financial Reporting Standards as adopted by theEU;
“Independent Director” means Alexander Robert Hambro;
“Independent Shareholders” means Shareholders other than the members of the Concert Party andthe Non-Independent Shareholders;
“Listing Principles” means the listing principles set out in Chapter 7 of the Listing Rules;
“Listing Rules” means the listing rules made by the UK Listing Authority under section73A of FSMA as amended from time to time;
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“London Stock Exchange” means London Stock Exchange plc;
“Main Market” means the main market for listed securities of the London StockExchange;
“Main SPA” means the agreement between the Company and certain Sellers relatingto the acquisition by the Company of the shares of OTAQ GL held bythem as described in paragraph 12.12 of Part 14 of this Document;
“Market Abuse Regulation” means the Market Abuse Regulation (EU) No. 596/2014;
“Net Placing Proceeds” means the funds received on closing of the Placing less any expensespaid or payable in connection with the Admission and the Placing;
“New Ordinary Shares” means the Placing Shares and the Consideration Shares;
“Non-Executive Director” means a director who is not a full or part-time employee of theCompany or holder of an executive office;
“Non-Independent Shareholders” means any Shareholder who has been deemed to be non-independent bythe Panel and will not be able to vote on the Whitewash Resolution;
“Notice of General Meeting” means the notice of the General Meeting which forms part of theCircular;
“Official List” means the official list maintained by the UK Listing Authority;
“ordinary resolution” means a resolution of the Shareholders requiring a simple majority ofnot less than 50%;
“Ordinary Shares” means the ordinary shares of 3p each in the capital of the Company as atthe date of this Document which, following the passing of theConsolidation Resolution, shall be consolidated into ordinary sharesof 15p each. Following Admission, it is expected that the OrdinaryShares will comprise the Existing Ordinary Shares, the New OrdinaryShares and any ordinary shares in the capital of the Company,subsequently issued;
“OTAQ Chile” means OTAQ Chile SpA, a company registered in Chile with registerednumber 76.445.203-8 and having its registered office at PachecoAltamirano 2875, Angelmo, Puerto Montt, Chile;
“OTAQ Connectors” of “LinkSubsea”
means OTAQ Connectors Limited (a company registered in Englandand Wales registered number 3390574) (formerly named Link SubseaLimited);
“OTAQ Connectors PurchaseAgreement”
means the share purchase agreement between inter alia OTAQ GL andDavid Andrew Bowler relating to the acquisition of the share capital ofOTAQ Connectors, details of which are set out in paragraph 11.12 ofPart 14 of this Document;
“OTAQ GL” means OTAQ Group Limited (a company registered in England andWales registered number 05471794);
“OTAQ Offshore PurchaseAgreement”
means the share purchase agreement between inter alia OTAQ GL andinter alia Harold Volker Rotsch relating to the acquisition of the ShareCapital of OTAQ Offshore, details of which are set out inparagraph 11.13 of Part 14 of this Document;
“OTAQ Offshore” or“Marinesense”
means OTAQ Offshore Limited, a company registered in Scotlandregistered number SC314760) (formerly named Marinesense Limited);
“OTAQ Option Shares” or “OptionShares”
means the Ordinary Shares to be issued to Jag Mundi and Phil Newby inrelation to the acquisition of their shares in OTAQ GL pursuant to thearrangements described in paragraph 16 of Part 7 of this Document;
“OTAQ Purchase Agreements” means the Main SPA and the Dragged Shareholder Purchase Agreement(to be entered into) as described in paragraph 12.12 of Part 14 of thisDocument;
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“OTAQ Share Options” means the share options granted by OTAQ GL and described inparagraph 16 of Part 7 of this Document;
“Panel” means the Panel on Takeovers and Mergers;
“Placees” means those persons who have signed placing letters;
“Placing” means the proposed placing of the New Ordinary Shares by theCompany at the Placing Price, conditional on Admission and on theterms and subject to the conditions set out in this Document;
“Placing Agreement” means the placing agreement dated 10 March 2020 between theCompany, the Directors, the Proposed Directors, Jagjit Mundi andDowgate, details of which are set out in paragraph 15 of Part 7 of thisDocument;
“Placing Price” means 57.5 pence per New Ordinary Share;
“Placing Proceeds” means approximately £1.5 million, being the gross proceeds received onclosing of the Placing;
“Placing Shares” means the 2,608,694 Ordinary Shares of 15p each to be issued andallotted pursuant to the Placing;
“Premium Listing” means a premium listing under Chapter 6 of the Listing Rules;
“Proposed Directors” means the proposed directors of the Company whose names appear assuch in Part 4 of this Document;
“Prospectus Directive” means Directive 2003/71/EC (and any amendments thereto, includingDirective 2010/73/EU, to the extent implemented in the relevantMember state), and includes any relevant implementing measures ineach EEA Member State that has implemented Directive 2003/71/EC;
“Prospectus Regulation” means Regulation (EU) 2017/1129;
“Prospectus Regulation Rules” means the Prospectus regulation rules of the FCA made in accordancewith section 73A of FSMA implementing and incorporating inter aliathe Prospectus Regulation and the Prospectus SupplementaryRegulation;
“Prospectus SupplementaryRegulation”
means Commission Delegated Regulation (EU) 2019/980;
“QCA Code” means the Quoted Companies Alliance corporate governance code;
“QCA Remuneration CommitteeGuide”
means the QCA Remuneration Committee Guide as amended from timeto time;
“Qualified Investors” means persons who are “qualified investors” within the meaning ofArticle 2I of the Prospectus Regulation;
“Registrar” means Share Registrars Limited;
“Regulatory Information Service” means one of the regulatory information services authorised by theUK Listing Authority to receive, process and disseminate regulatoryinformation from listed companies;
“Resolutions” means the resolutions (including the Transaction Resolutions) to beproposed at the General Meeting as set out in the Notice of GeneralMeeting, with any permitted amendments thereto to include theTransaction Resolution and the Consolidation Resolution;
“Restricted Jurisdiction” means the United States, Canada, Japan, Australia and the Republic ofSouth Africa;
“Reverse Takeover” means a reverse takeover as defined in the Listing Rules;
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“Sealfence” means the proprietary acoustic deterrent device to deter seal attacks infish farms as developed by the Enlarged Group, details of which are setout in paragraph 3.2 of Part 6 of this Document;
“Sellers” means the sellers of the entire share capital of OTAQ GL pursuant to theAcquisition;
“Shareholders” means the holders of Ordinary Shares;
“special resolution” means a resolution of the Shareholders requiring a majority of not lessthan 75%;
“Standard Listing” means a standard listing under Chapter 14 of the Listing Rules;
“Takeover Code” means the City Code on Takeovers and Mergers;
“TCPUSO 1997” means the Town and Country Planning (Use Classes) (Scotland) Order1997;
“TCPUSO 1987” means the Town and Country Planning (Use Classes) Order 1987;
“Transaction Resolutions” means the resolutions to be proposed at the General Meeting to approvethe Acquisition, the Placing and the Re-admission of the Company tothe Official List, being resolutions 1 to 4 (inclusive) as set out in theNotice of General Meeting, with any permitted amendments thereto;
“UK Listing Authority” means the FCA in its capacity as the competent authority for listing inthe U.K;
“uncertificated” or “uncertificatedform”
means, an Ordinary Share, title to which is recorded in the relevant shareregister as being held in uncertificated form (that is, in CREST) and titleto which may be transferred by using CREST;
“United Kingdom” or “U.K.” means the United Kingdom of Great Britain and Northern Ireland;
“United States” means the United States of America;
“VAT” means (i) within the EU, any tax imposed by any Member State inconformity with the Directive of the Council of the European Union onthe common system of value added tax (2006/112/EC), and (ii) outsidethe EU, any tax corresponding to, or substantially similar to, thecommon system of value added tax referred to in paragraph (i) of thisdefinition;
“Waiver Proposal” means approval by Independent Shareholders of the waiver granted bythe Panel of the obligation that would otherwise arise on any member ofthe Concert Party to make a general offer to Shareholders pursuant toRule 9 of the Takeover Code as a result of the issue to them of theConsideration Shares, the Warrant Shares and the OTAQ Option Shares;
“Warrants” means the warrants as described in paragraph 17 of Part 7 of thisDocument;
“Warrantholders” means persons to whom the Warrants were granted, the details of whomare set out in paragraph 17 of Part 7 of this Document;
“Warrant Instrument” means the equity warrant instrument made by the Company on27 November 2018; and
“Warrant Shares” means the Ordinary Shares to be issued to Warrantholders on exercise ofthe Warrants, details of which are set out in paragraph 17 of Part 7 ofthis Document;
“Whitewash Resolution” means the ordinary resolution to approve the Panel’s waiver of theConcert Party’s obligation to make an offer under Rule 9 of theTakeover Code, which is set out at Resolution 1 of the Notice of GeneralMeeting.
